Coming to the United States? - Check your tax obligations before you arrive!
By IBCircle Member and Newbery International Principal/Owner, Matthew Green
One of the more avoidable errors that many people make when moving to another country is not fully considering the tax issues. For example, how is their salary going to be taxed in either country? What about retirement arrangements or investments in the home country - what are the rules regarding those? Could there be double taxation on any income?
Generally, I find that transferees to the US are given assistance with the filing of their tax obligations after they arrive, but this usually only lasts for a year or so, then they are on their own. I have also found in these circumstances that the assistance offered may not be complete and the employee is none the wiser until they consult a different tax professional. However, once the employee is in place, the damage is usually already done.
Consider two contrasting examples:
Firstly, a company is branching out into the US and transfers two employees to set up the company. This company is relatively small and does not provide any assistance to employees regarding tax advice. It is only after appointing a tax preparer that the employees find out that some of the investments they hold are subject to a special tax regime in the US, and they are faced with a significant tax bill and a high cost for preparing their returns. This directly causes one of them to resign and move back home.
In the second example, a person in Asia moves to the United States to take up a new position. She has a significant investment in the local state retirement plan, and when she leaves the country, she is required to withdraw all of her fund holdings tax free. The timing of this transfer is crucial, because, in this case, if she comes to the US before taking the pension distribution all that income is taxable here, whereas if she takes the money before she becomes a US resident there is no US tax on the income.
By speaking to a tax advisor before she moves to the US, the second person has saved herself a significant amount of tax. By not speaking to a tax advisor before the move, the employee in the first example has cost himself a significant amount.
It is worth noting that seeking a tax advisor is not only recommended for individuals - companies are also advised to consult before the creation of a US company is completed to ensure that it is structured correctly to minimize the tax effect on the owners. Also, to ensure that the project is successful, they should offer their employees tax assistance before they move. This can be done quite simply - a tax presentation to the employees could save a lot of time and money for all concerned.
Some countries have their own particular twists- for example in Australia there are some investment structures that can prove tricky for people immigrating to the United States. For example, the IRS has said that some superannuation funds are to be treated as trusts, which involves increased reporting and significant penalties for lack of compliance.
Therefore, it always pays to look before you leap when it comes to taxes.
Footnote: Matthew Green is a dual citizen of the UK and the US and holds qualifications in both countries. He has been working in the international and US taxation sphere for 10 years and runs his own tax practice. For more information, see www.newberyinternational.com or call on +1 720 272 3909.