What is the Golden Visa Program for Americans, It is Worth It?

Golden Visa Programs for Americans

Golden Visa Programs for Americans 

While most Americans are content with paying some taxes, sometimes U.S. taxes can feel just plain unfair. This is especially true for U.S. taxpayers who built up their businesses from the ground up and are now being taxed at the highest tax rate, without the U.S. government providing benefits that many other countries do for entrepreneurs. In addition, many of these taxpayers are phased out of any available deductions — so that after spending many years building their businesses, they now find themselves paying tax at the highest tax rate with little in the way of tax reprieves. In researching how to reduce their taxes, some American entrepreneurs will find themselves inundated with glossy marketing materials about all the wonderful benefits of purchasing a Golden Visa or an Offshore Plan B — and traversing the globe without having to pay taxes anywhere. Unfortunately, there is much in the way of fine print that these marketers fail to inform the taxpayers about — which can result in significant costs that outweigh any benefits. Let’s look at three very important facts Americans should consider before purchasing a Golden Visa.

Americans Must Expatriate to Get the Tax Benefits of a Golden Visa 

When referring to golden visa programs, we are not focused on digital nomad opportunities — in which taxpayers can live overseas for a few months out of the year or even longer without having to go through the administrative processes of obtaining a more permanent visa. Purchasing a golden visa is primarily done when a taxpayer anticipates relocating to a foreign country to live. Many countries that have golden visa programs entice Americans to purchase these visas by offering a very low or zero tax rate for an extended time. However, it is very important to note that the American is still considered a U.S. person for tax purposes — even if they purchase foreign investment citizenship — unless they formally expatriate. To formally expatriate, the taxpayer must renounce their U.S. citizenship. For wealthy and high-income earners who are seeking tax refuge overseas, expatriating may lead to a significantly high exit tax at the time that they renounce their U.S. citizenship. It may also lead to additional reporting requirements for Americans even after they expatriate — as well as limitations in giving gifts to U.S. persons since these gifts will cost upwards of 40% in taxes at the time the gift is given to a U.S. person.

Increased U.S. Transparency (PFIC, FBAR and FATCA)

To purchase a golden visa, the foreign government requires the taxpayer to make a significant investment into the economy of the foreign country. This investment will typically include acquiring funds or bond funds as well as maintaining foreign accounts in the country. Moreover, these investments are made before the taxpayer has expatriates because the U.S. Government will not approve a renouncement of U.S. citizenship until the Taxpayer has obtained second citizenship. Thus, U.S. taxpayers will have to report all of this foreign account and investment information (that they may have hoped to keep secret from the U.S. government) as part of their final tax return – or several years of U.S. tax returns depending on how long it takes the taxpayer to complete the expatriation process. Many consulates are several months behind in scheduling the renouncement process, so taxpayers may be reporting their foreign funds to the U.S. government for many years.

Post-Expatriation Taxes and Investment Citizenship Rules Changes

Many foreign countries that offer golden visa programs do so because want to bring foreign wealth into their economy. At first, when the U.S. person is considering investing in the country, they are usually looking at the opportunity through rose-colored glasses and the immediate perceived tax benefits — but not looking far enough into the future to prepare for potential hurdles and complications. Some of these golden visa countries require the taxpayer to pay a significant amount of tax after they have been a citizen of that country for multiple years — and either reside in that country and/or have a high net worth (wealth tax).  In addition, if the taxpayer later decides they no longer want to have that foreign citizenship, it is not always easy to renounce the foreign citizenship. That is because different countries have different requirements and there may be fines and penalties associated with canceling the citizenship — not the least being a difficulty for Americans trying to get their investment back out of the country when they want to terminate their foreign citizenship.

Be Careful Before Buying a Golden Visa

Purchasing a golden visa can be a great opportunity for taxpayers seeking to travel to places that may be more difficult with a U.S. passport. This is the primary reason why people should purchase golden visas. However, most taxpayers will not even require a Citizenship-by-Investment Golden Visa. Instead, they can get by with a Residence-by-Investment visa that they can use to travel to the different locations where they want to spend some time if they believe their U.S. Passport is not sufficient for these travel purposes – and then determine whether they want to relocate themselves and their families overseas, purchase foreign citizenship, and renounce their U.S. citizenship.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.  *This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.