Navigating an increasingly complex cross-border tax landscape
As high net worth families expand their personal and business reach, as their “operational footprint” grows, and as investment capital becomes more mobile, the reality of globalization’s diverse consequences, including taxation, can be startling.
- Cross-border income tax
- Estate and gift tax
- Lifestyle assets
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Cross-border income tax
In an increasingly borderless world, it is not unusual to see cross-nationality marriages, members of the same family living in different countries, or individuals living in one country while working in another. As a result, it is vitally important for individuals and their families to proactively understand and effectively plan for the management of their global tax obligations. A tax adviser with a global perspective, local knowledge, and widespread resources can be especially helpful.
Non-US citizens who move to or invest in the United States can benefit from effective tax planning, both from a US perspective and in determining a tax-efficient global tax position:
- Residency status can mean the difference between being taxed on all of an individual’s worldwide income or just the income that is tied to US sources.
- Whether classified as a US resident or nonresident alien, an individual’s choice of where to live or invest in the United States could create exposure to various state and local income taxes.
- Individuals may be subject to double taxation in the United States and other countries depending on a number of factors, which require careful consideration and planning.
US citizens and green card holders may face complex planning issues when they decide to live, work, or invest in other countries:
- US tax filing and reporting obligations not only continue, but are likely to become more challenging.
- Additional US information reporting obligations may arise for individuals establishing a business or investing in a foreign country, and US tax rules may disadvantage certain types of investments and entity structures.
- By establishing residency in another country, individuals may get relief from double taxation, but at the same time become subject to that country’s taxes on their US investments.
Timely and effective tax planning can provide individuals with the tax-informed insights they need to make decisions for the short term and long term.
Learn more about what it means to be a global taxpayer:
Estate and gift tax
A high net worth individual’s domicile status determines whether that person’s assets are subject to US estate and gift taxation. Important considerations include:
- Domicile status is different than residence status, and a facts and circumstances test is required to determine whether an individual is a US domiciliary.
- Non-US domiciliaries are taxed on the value of their US “situs” tangible and intangible assets owned at death and US situs tangible assets gifted during their lifetime. US situs assets can include real and tangible personal property, as well as business assets, located in the United States. US situs intangible assets can include stock of US corporations.
- US citizens with non-citizen spouses are subject to additional estate and gift taxes. The rules around these taxes are quite different than when both spouses are US citizens.
Again, timely and effective tax planning can help individuals make informed decisions about estate and gift tax matters that can have significant consequences for surviving spouses, family members, and others.
Certain lifestyle assets such as aircraft, arts, antiques, watercraft, jewelry, and other collectibles can provide both financial value and personal enjoyment, but they may create potential tax liabilities in the eyes of taxing authorities. As with other financial investments, proper planning and structuring is critical. High net worth individuals who invest in lifestyle assets should be aware of the income, sales, gift, and estate tax planning implications of holding and transferring such assets.
Learn more about Deloitte Family Office services
While death and taxes are inevitable, their consequences do not need to be a surprise. Family offices are in a unique position to prepare their organization and the families they serve to plan for the inevitable.
Explore the wealth transfer planning strategies that family offices must use to prepare the high net worth families they serve for the death of a principal.