Do Golden Visa Holders Pay U.S. Taxes and Report Assets?

Is Golden Visa Investment Income Taxable for Americans?

Do Golden Visa Holders Pay U.S. Taxes and Report Assets?

When Americans purchase a golden visa, they are often led to believe that they will enjoy the low tax rate in the foreign country without paying U.S. taxes on their income, but this is incorrect. U.S. taxpayers who are purchasing a golden visa (either Citizenship-by-Investment (CBI) or Residence-by-Investment (RBI)) must be aware of the U.S. tax implications associated with purchasing assets in a foreign country — which apply, whether the taxpayer resides in the foreign country or not and whether the taxpayer brings the money back to the United States or not. Unfortunately, sometimes income that is generated in a foreign country can get taxed at a much higher tax rate than a comparable income of the same category if it was US-based (such as foreign mutual funds and ETFs). Thus, investing in the Golden Visa may increase the taxpayer’s overall tax liabilities. Let’s take a look at how U.S. taxes impact Golden Visa Holders.

First, What is a Golden Visa?

Golden visas are opportunities for individuals who are not citizens or residents of that country to obtain citizenship or residence in a foreign country offering a golden visa (the U.S. has its version of this program — ‘EB-5’ visa). There are generally two main categories of golden visas: Citizenship-by-Investment (CBI) — in which the ultimate goal of the purchaser of the golden visa is to require citizenship in the foreign country — and Residence-by-Investment (RBI) — in which the taxpayer seeks residence and visa travel rights through the foreign country but may not ultimately be seeking to become a citizen of that country. When it comes to U.S. tax purposes though there is no significant difference between the two categories of golden visas.

U.S. Tax on Foreign Income

Unlike most other countries, when it comes to individuals such as U.S. citizens, lawful permanent residents, and foreign nationals who meet the substantial presence test, taxpayers are taxed on their worldwide income. This is true, even if:

• • • the income is earned in foreign countries,

    • the taxpayer lives in a foreign country, and/or

    • the income is tax exempt or taxed at a lower tax rate in the foreign country.

In other words, if the person is considered a US person then they are still required to report their worldwide income and pay U.S. taxes on that income.

Reporting Golden Visa Investments to the U.S. Government

One of the big allures of investing in the golden visa is that investors are made to believe they can keep the money offshore, away from the U.S. government’s prying eyes. Unfortunately, as a U.S. person, individuals are also required to report various foreign assets to the U.S. government on a myriad of different international information reporting forms. Foreign investments such as bank accounts, stock accounts, mutual funds, other types of funds, retirement plans, and insurance policies are all reportable to the U.S. government. Likewise, taxpayers are also required to file several different forms to report these assets, such as the FBAR, Form 8938, Form 5471, Form 8621, and other forms as well. While the failure to file these forms may result in significant fines and penalties, these penalties may be avoided, minimized, or abided through one of the offshore amnesty programs or procedures.

Golden Visas Require Expatriation for Tax Benefits

What these ‘offshore experts’ fail to explain to U.S. taxpayers is that even though the foreign country does not have any tax, he is still a U.S. citizen. And, the United States taxes U.S. citizens on their worldwide income, no matter where they live and no matter where the income is sourced. Taxpayers must renounce  U.S. citizenship to obtain the tax benefits of the golden visa. Noting, that it can be very difficult to try to get back to the United States for any extended period. Once an American renounces their U.S. Citizenship, if they want to get it back (which they often do), they have to get to the back of the line with everybody else — and it could be difficult if not impossible to re-obtain U.S. citizenship (or the specific visa they want) depending on whether or not he can qualify for any of the programs.

Late-Filing Disclosure Options

If a Taxpayer is only considering going offshore because they are out of U.S. tax compliance for their foreign income or assets, 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.

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.