EB5 Investors Magazine Volume 7, Issue 2 | Page 26

CONTROLLED FOREIGN E NTITIES: Companies controlled by individuals who plan to move to the U.S. and become U.S. tax residents are considered controlled foreign entities. For these entities, in addition to the election of treatment mentioned before, there is the option to defer income taxation in the U.S. by interposing a U.S. corporation, if earnings and profits are reinvested in business activities. "There are strategies to remove assets from the U.S. estate and gift taxation if they are implemented prior to moving to the U.S." taxation if they are implemented prior to moving to the U.S. One option is to gift assets to beneficiaries before the move. Another is to set up an irrevocable trust. Families may also choose to purchase a life insurance policy to cover the future estate tax liability, or a combination of all these strategies. IT’S NEVER TOO SOON TO START PLANNING FOREIGN MUTUAL FUNDS: Special attention should be given to foreign mutual funds. Those are usually considered Passive Foreign Investment Companies (or PFICs) in the U.S. PFICs are heavily taxed – if no special election is or can be made, the U.S. will tax income arising from PFICs at the highest individual income tax rate during the period in which the taxpayer held shares of the PFIC while a U.S. tax resident. This rate is currently at 37%. Given the significant financial impact of U.S. taxes on an individual’s foreign income and assets, planning prior to the move is imperative. It’s never too soon to start planning. Some strategies may need to be implemented at least 2 years prior to the move to be effective and accepted by the IRS. ESTATE TAX PLANNING Cristina S. Teixeira is the founder of 2A International Tax Advisors, with offices in Miami and Sao Paulo, Brazil. She specializes in U.S. tax advisory services for international clients seeking to relocate to or invest in the U.S. She also has expertise in tax matters in all major Latin American countries and the U.S., where she is a certified public accountant and trust and estate practitioner. Teixeira has a bachelor’s degree in business administration and a post-graduate degree from Fundacao Getulio Vargas in Brazil. Another aspect of concern when moving to the U.S. via the EB-5 route is the estate tax. Green card holders are usually considered to be domiciled in the U.S. As a result, all their worldwide assets are subject to estate and gift tax in the U.S. The tax rate is 40% for assets valued over $1 million. There is currently a lifetime exemption of approx. $11.6 million per person 1 . This means that only assets valued over this threshold will be subject to the U.S estate and gift tax at 40%. For families with a substantial level of wealth, there are strategies to remove assets from the U.S. estate and gift 26 EB5 INVESTORS M AGAZINE Sources: 1 This limit is expected to be reduced by half in 2026, as per current US legislation.