Investing in the U.S.: Tax Strategy from Entry to Exit

Many tax consequences are determined by decisions made before money is transferred, an asset is purchased or the investor moves. We identify current and expected tax residency, expected types of income, ownership structure, treaty opportunities, potential federal estate tax, withholding, reporting obligations and the exit plan. For clients preparing to move to the U.S., we separately review foreign companies, funds, accounts and other assets because a change in status may bring worldwide income into the U.S. tax system and trigger complex additional reporting. The result is a written action map while changes can still be made.

A tax mistake is often built into a real estate transaction before closing: an unsuitable ownership structure, the wrong rental-income treatment or no exit plan can increase tax and complicate a later sale. We compare ownership options, rental taxation, expenses, depreciation and cost segregation, financing, annual compliance, sale withholding and estate tax. We prepare a document list and action calendar from purchase through future sale. If the property is already owned and returns were filed late or not filed at all, we separately review whether deductions can be preserved and the intended tax treatment restored.

Forming a U.S. company does not by itself resolve the tax issues. A foreign owner may have mandatory reporting even when the company has no income and no tax due. We determine the preferred tax classification, the foreign owner’s obligations, treatment of related-party transactions, withholding and required filings. For a U.S. company with a single foreign owner, we separately review Form 5472 together with the pro forma Form 1120; filing can be triggered by owner contributions, distributions, loans or other related-party transactions. We establish an annual data-collection process so the company remains compliant after formation, not only on the day it is created.

Moving to the United States can sharply change a family’s tax position: income and assets previously outside the U.S. tax system may become taxable or reportable once status changes. We model the transition from nonresident to U.S. tax resident, including green-card status, days of presence, the residency start date, possible exceptions and tax-treaty positions. We separately check whether residency arises in a particular state because state rules may differ from federal rules. Before the move, we review foreign companies, funds, accounts, trusts, gifts and other assets. This analysis is also important before selling appreciated assets, changing ownership structures or receiving large distributions.

When foreign owners sell U.S. real estate, they may face mandatory withholding of 15% of the transaction price even though the actual tax on the gain may be much lower. Before closing, we calculate the expected tax and withholding, assess whether a withholding certificate may reduce the amount, confirm tax identification numbers and model the effect of prior depreciation. After the sale, we prepare the tax calculation and, where withholding exceeds the actual tax, arrange the refund claim.

A foreign investor should consider U.S. estate tax before the U.S. asset is acquired, when changing the ownership structure is generally easier and less costly. We determine which assets are treated as U.S.-situs property for federal estate-tax purposes, whether estate-tax domicile differs from income-tax residency, whether a treaty applies and whether Form 706-NA may be required. For U.S. real estate and shares of U.S. corporations, this analysis is particularly important before acquisition. When needed, we coordinate specialized legal counsel, valuation professionals and advisers in the client’s home country.

A foreign company can incur U.S. tax obligations even without forming a separate U.S. entity. The location of services, employees and agents, inventory, online marketplaces and other factual U.S. connections all matter. We analyze sales, services, employees, contractors, inventory, marketplaces and payment flows. We determine whether the company is engaged in a U.S. trade or business, what income is effectively connected with that activity, whether treaty protection through a permanent-establishment standard is available, and whether Form 1120-F is required. Where U.S. business activity is uncertain, we may recommend a protective return to preserve deductions and other tax benefits if the IRS later takes a different view. We also review transfer pricing, state taxes and sales tax.

Without an individual taxpayer identification number, a foreign investor may face delays in filing a return, receiving a refund or completing a transaction, while incorrect documentation of the income recipient’s status can lead to excess withholding. We determine whether an ITIN is needed, prepare Form W-7 and, when appropriate, coordinate identity verification through an IRS-authorized acceptance agent. We review Forms W-8 and Form 1042-S so that recipient status, type of income, treaty rate and actual withholding are consistent with one another.