U.S. tax obligations for EB-5 investors

For U.S. federal income tax purposes, a person who is not a U.S. citizen is generally treated as either a resident alien or a nonresident alien. Under the IRS green card test (opens in a new tab), a person who is a lawful permanent resident of the United States at any time during a calendar year is generally a U.S. tax resident for that year. Because EB-5 leads to permanent residence, beginning with conditional residence, EB-5 investors and their families should expect the green card test to become relevant once they obtain status.

Tax residency does not wait for the move to feel complete. It can begin before a family has sold its home abroad, moved its savings or settled children in school. The exact date on which U.S. tax residency starts, and how the first and last years of residency are treated, depend on detailed rules that a tax adviser should apply to your dates.

U.S. tax residents are generally required to report their worldwide income on their U.S. return, not just income earned in the United States. Depending on circumstances, this can include:

• Salary and other employment income, wherever earned.
• Rental income from property abroad.
• Dividends and interest, including from foreign bank accounts and fixed deposits.
• Capital gains, for example from selling shares or property outside the United States.
• Income from businesses operated or owned overseas.

An example: rental income in India

Suppose an investor owns a flat in India and continues to rent it out after becoming a U.S. tax resident. That rental income may need to be reported on the investor's U.S. return, even if the rent is paid into an Indian bank account and never leaves India. The same income may also be taxable in India.

Being taxed on the same income in two countries is a real concern, but there are mechanisms intended to reduce it. Depending on the facts, foreign tax credits or the provisions of an applicable income tax treaty may reduce double taxation. Whether and how they apply is a question for a qualified tax adviser.

In addition to reporting income, U.S. tax residents may need to disclose certain foreign accounts and assets. The table below summarises the main requirements in general terms. Thresholds, exceptions and filing details are set by the IRS and the Financial Crimes Enforcement Network (FinCEN) and can change, so check the official guidance with your adviser.

Note that the FBAR threshold is based on the aggregate value of all foreign financial accounts, not each account separately. Several modest accounts, such as savings accounts and fixed deposits in India, can together exceed $10,000.

Moving to the United States can also change a family's estate planning picture. Exposure to U.S. estate tax generally depends on factors such as citizenship, domicile, where assets are located and the exemptions available. Assets in more than one country can mean that more than one set of inheritance and succession rules applies.

Before relocating, families often review with qualified advisers in each country:

• Existing wills and whether they work in each country where assets are held.
• Trusts and other holding structures, which may be treated differently under U.S. rules.
• Beneficiary designations on accounts, insurance policies and retirement plans.
• Plans for cross-border inheritance, including gifts or inheritances parents abroad may intend to leave to children who become U.S. residents.

1. 01

   Step 1: Worldwide income

   As a U.S. tax resident, income from every country is generally reportable on your U.S. return.

2. 02

   Step 2: The FBAR threshold is combined

   The $10,000 FBAR threshold refers to the combined value of foreign accounts at any time in the year, not each account.

3. 03

   Step 3: Two-country compliance

   Obligations in your home country generally continue. U.S. compliance and home-country compliance are separate questions.

4. 04

   Step 4: Residency can start early

   Tax residency can begin before every practical step of relocation is complete, so planning is best done before obtaining status.

• Consult a qualified cross-border tax adviser familiar with U.S. rules and your home country's rules before investing or relocating.
• Read EB-5 for families for wider household planning, and planning for children and age.
• If your funds come from India, see source of funds for Indian investors.
• Review the wider costs of EB-5, which can include tax advice.
• To be connected with appropriate qualified professionals, request a consultation. EB5 Circle does not provide tax, legal or investment advice.