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Scharlack • Oct 14

DO YOUR TAX PLANNING IN THE UNITED STATES TIMELY

The majority of Brazilians worry about reorganizing their assets to optimize tax consequences in the United States of America (U.S.) when he/she receives or is close to receiving a permanent visa (green card). When that concern arises, the individual already lives in the U.S. or has already packed his/her bags to move there.

 

Few people know that entering the U.S. with a green card is just one way of becoming a U.S. resident for tax purposes. Another very common way of becoming a U.S. tax resident is to be physically present in the country for a minimum number of days (Substantial Presence Test). A third way is to be in American soil and receive an adjustment of status from immigration authorities. Aside from the first hypothesis, the foreign individual becomes a U.S. income taxpayer before getting his/her green card. And, when he/she concerns about doing the so-called "pre-immigration tax planning", it is too late.

The U.S. taxes the worldwide income of its residents. Income from sources within or without the U.S. shall be reported to be taxed in that country. This means that the Brazilian individual who has income from Brazil but is resident in the U.S. for tax purposes must report such Brazilian income to be taxed in the U.S. For countries which do not have a treaty to avoid double taxation (the situation of Brazil), the U.S. allows a credit for the tax paid abroad towards the American tax, under certain limitations. In reciprocity, Brazil also grants a credit of the U.S. tax against the IRPF. In some situations, the Brazilian tax is greater. In others, American taxation is heavier. A way to avoid double tax imposition is to coordinate U.S. tax residency with exiting Brazil for tax purposes.

 

As to the tax upon transfers on death and donations (ITCMD in Brazil, estate or gift tax in the U.S.), there is no treaty or reciprocity of treatment to avoid double taxation, at least in relation to Brazil. Planning is necessary. One of the criteria for these taxes to levy is the situs of these assets. Another is the domicile (not the residence) of the person.

 

Therefore, in order not to owe taxes to Uncle Sam before time, take some precautions:

 

(1) Keep track of the days you spend in the U.S. annually,

 

(2) Verify the tax effects of some applications you file to American immigration authorities

 

(3) Know beforehand the tax effects which your assets and income shall produce in the U.S. and in Brazil, and

 

(4) Plan to anticipate, delay or even avoid (if possible) some of these effects before you become resident or domiciled in the U.S. for tax purposes.

Read the article in Brazilian Portuguese here.

Homens com calculadora
BOOKLET
Basic Notions of U.S. Tax for Foreign Individuals
By Scharlack
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Tire suas dúvidas sobre imposto de renda de pessoas físicas, o imposto sobre heranças e o imposto sobre doações aplicados a estrangeiros nos Estados Unidos. Baixe aqui.

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Scharlack

J. Rubens Scharlack

jr@scharlack.legal

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