Legalmondo & Internacionalize
The Internationalize portal, alongside Legalmondo, launches the Brazilians around the world series, which will address the main legal aspects of each country, analyzed from the points of view: immigration, tax, succession and business. This edition covers the United States of America.
Browse through the questionnaire items in the menu below:
Immigration Law
1. The main work visas in the U.S.
Work visas in the U.S. are referred to with the term “nonimmigrant visas”, as they only grant the right to work temporary in the U.S. On the other hand, an immigrant visa grants the right to reside permanently in the U.S. and to work for any organization therein. It is commonly referred to as “Green Card”.
The following are the most common work visa granting nonimmigrant status in the US. These work visas allow the visa holder to work solely for the organization sponsoring the visa:
a. H-1B / Specialty Occupation: This visa category usually applies to people who wish to perform services in a specialty occupation which requires a U.S. bachelor’s or higher degree from an accredited college or university. The visa is generally granted for an initial period of 3 years, which is renewable up to a maximum of 6 years of stay.
Only 65,000 new H-1B visas can be issued during each fiscal year, together with an additional 20,000 petitions filed on behalf of beneficiaries with a master’s degree or higher from a U.S. institution of higher education that are exempt from the 65,000 H1B cap.
b. L1-A / Intracompany Transferee Executive or Managers: This visa category applies to executives or managers who need to be transferred to a company in the U.S. from one of its affiliated foreign offices. This classification also applies to a foreign company without an affiliated U.S. office, to send an executive or manager to the U.S. to establish such new affiliated company there. Aside from the managerial role of the candidate, the main requirement is that the candidate has been working for the affiliated foreign office for one continuous year within the three years immediately preceding his or her admission to the U.S.. The visa is usually granted for an initial period of 1 to 3 years, with the possibility of biennial renewal up to a maximum of 7 years of stay.
c. L1-B / Intracompany Transferee Specialized Knowledge: This visa category applies to a professional employee with specialized knowledge relating to the organization’s interests who needs to be transferred to a company in the U.S. from one of its affiliated foreign offices. This classification also applies to a foreign company without an affiliated U.S. office, to send a specialized knowledge employee to the United States to help establish one. Aside from the specialized knowledge of the candidate, the main requirement is that the candidate has been working for the affiliated foreign office for one continuous year within the three years immediately preceding his or her admission to the United States. The visa is usually granted for an initial period of 1 to 3 years, with the possibility of biannual renewal up to a maximum of 7 years of stay.
2. Investment-related visas in the U.S.
E2 / Treaty Investors: The E-2 nonimmigrant classification allows a national of a treaty country to be admitted for work in the U.S. when investing a substantial amount of capital in a U.S. business (usually in the range of $150,000.00, but the amount depends on the type of business). This Visa also allows entry to the U.S. of executive, managers and essential skills employees of the investor. However, this Visa is not available when the majority owner of the U.S. business is a U.S. Citizen or a Green Card Holder. The maximum initial stay allowed is of 2 years, with request of biennial extensions allowed, without any maximum limit. All E-2 nonimmigrants, however, must maintain an intention to depart the U.S. when their status expires or is terminated.
3. Special types of visa in the U.S.
The O-1 nonimmigrant visa is for individuals possessing extraordinary ability in the sciences, arts, education, business, or athletics, or who has a demonstrated record of extraordinary achievement in the motion picture or television industry and has been recognized nationally or internationally for those achievements. The O1 visa applicant is allowed temporary entry to the U.S. to continue work in the area of extraordinary ability. Usually the maximum period of stay allowed is of 3 years, with the possibility of 1-year renewals.
4. How to obtain citizenship in the U.S.
In general, there are two ways to become a U.S. citizen: through marriage to a U.S. citizen or through an employer’s sponsorship. However, usually, the prerequisite to become a U.S. citizen is to be a permanent resident (a/k/a “green card” holder).
One can become a permanent resident in the U.S.:
Through marriage to a U.S. citizen or green card holder;
Through a petition of the employer known as “PERM” application, which needs to prove, through a lengthy process, that there are no able, willing, available, and qualified U.S. citizens or permanent residents for the specific position that is offered to the foreign national;
Through a petition of the employer when the employee is a multinational manager and executive, or for an employee who is a member of a profession holding advanced degrees or who has exceptional abilities.
Once an individual becomes a permanent resident, he can then apply to become a U.S. citizen:
When he has been married to a U.S. citizen for at least 3 years; or
When he has been a permanent resident for at least 5 years.
In addition to the submission of certain documents, a person seeking to become a U.S. citizen needs to pass a naturalization test and a personal interview.
Tax Law
1. Individual Income Tax in the U.S.
The U.S. taxes the worldwide income of its citizens and residents. To become a resident in the U.S. for federal income tax purposes, you must fall into one of these categories: (1) green card test, (2) substantial presence test, or (3) voluntary election, under certain conditions.
The applicable federal income tax rate varies from 10% to 37%, according to brackets that follow the taxpayer's filing status: single, married filing jointly, married filing separately, and head of household. A net investment income tax of 3.8% may also apply depending on the taxpayer’s amount and type of income.
The U.S. grants a foreign tax credit (FTC) for income taxes paid abroad. In order for a foreign tax to qualify as an income tax, the foreign tax must: (1) be a tax, (2) have its calculation based upon gross receipts, and (3) tax the taxpayer's net income (i.e. allow for expense deduction). There are specific conditions and restrictions for the FTC to apply and offset the taxpayer's U.S. federal income tax liability.
Each state may have its own income tax, the payment of which is generally deductible from the federal income tax. For instance, (i) except for corporations, Florida does not have an income tax; and (ii) New York City residents must pay a personal income tax.
2. Wealth Taxation in the U.S.
There is no wealth tax in the U.S.. There are, however, federal gift and estate taxes.
The legal framework of these taxes varies whether you are domiciled or not domiciled in the U.S.. Domicile is a facts-and-circumstances concept, which involves the idea of where a person ultimately wants to live. Although it tries to capture this subjective idea, the concept is based on rather objective factors, such as where does the taxpayer own a home, where does the taxpayer's close family lives, where are the taxpayer's associations, club and church affiliations, etc. Although holding a green card is an often strong factor to consider towards a person's domicile, it is not definitive, because residence and domicile are not the same.
For U.S.-domiciled taxpayers, the estate and gift taxes are levied upon transfers of assets worldwide. The taxpayer is granted a lifetime deduction of current $11 million, which married couples may combine. If a taxpayer uses her exemption in her lifetime (i.e., making gifts), there is no exemption left to be used upon death (i.e., when her estate passes on to her heirs).
For non-U.S.-domiciled taxpayers, the estate and gift taxes are levied only upon transfers of the so-called U.S.-situs assets, i.e. assets situated in the U.S. What is considered a U.S.-situs asset in relation to the gift tax may be different than what is a U.S.-situs asset for purposes of the estate tax. Non-U.S.-domiciled taxpayers are entitled to a lifetime deduction of only $60 thousand.
3. How the U.S. views Tax Havens
The U.S. does not have a black or gray list. It however seeks to inhibit profit shifting to low tax jurisdictions by means of the so-called Controlled Foreign Corporations (CFC) and Passive Foreign Investment Company (PFIC) rules. Very generally speaking, these rules, though through very different means, seek to tax a foreign corporation's profits when they are accrued, rather than when they are distributed to the U.S. shareholder as a dividend.
Since 2018, there is a federal tax levied upon a foreign corporation's so-called Global Intangible Low-Taxed Income (GILTI). The GILTI tax reaches the types of income and transactions that the CFC and PFIC rules cannot. Broadly speaking, GILTI is a foreign corporation's notional income arising from a complex calculation which takes into consideration the foreign entity's income, loss, deductions, and fixed assets.
Because the CFC and GILTI rules seek to tax only foreign income from low tax jurisdictions, a high-tax exception generally applies in relation to jurisdictions that impose income taxes the rates of which are at least 90% of the U.S. income tax rate on corporations (currently, 21%). The high-tax exception does not apply to income from a PFIC. Application of the high-tax exception is optionable.
4. Treaties to avoid double taxation in the U.S.
The U.S. is an OECD member. The U.S. usually inserts a limitation on benefits (LOB) clause into the double tax treaties it executes. An LOB clause is generally an anti-treaty shopping provision intended to prevent residents of third countries from obtaining benefits under a treaty that were not intended for them. Entities from a country whose income tax treaty with the U.S. contains an LOB clause are only eligible for treaty benefits if they satisfy one of the objective tests provided in the clause or if they obtain a specific favorable determination from the U.S. competent authority. The U.S. has currently 67 treaties to avoid double income taxation and 15 treaties to avoid double gift and/or estate taxation.
Succession Law
1. Probate in the U.S.
Family law in the U.S. is a state law matter. It varies therefore from state to state. In Florida, if the deceased person was a resident, then the probation shall involve all of the person's assets. If the deceased was not a resident, then probation shall only involve assets in the state. Florida is a per stirpes state, which means that every heir in the same level (i.e. all children of the deceased) inherit in equal shares. If someone in that level was pre-deceased (f.ex. one of the deceased's three children), that person's heirs (f.ex. her two children) shall occupy the pre-deceased person's position and inherit that person's share (1/3) in equal parts among themselves (i.e., 1/6 to each).
2. Trusts and Foundations under the U.S. Law
All 50 U.S. states recognize trusts. Trust have different aspects in each state.
The U.S. recognizes private foundations, not as an entity type per se (they can be organized as trusts or as non-for-profit corporations), but as a consequence of their intended (generally charitable) purpose.
Business Law
1. Setting up and running a business entity in the U.S.
In general, setting up a company in the U.S. is quite easy. The first step is to determine in which state to register your company because each state has its own company types, requirements and taxation.
For example:
Florida: It is rather easy and straightforward to set up an entity in Florida. The most common entity type is the Limited Liability Company (LLC), which combines the limited liability of a corporation with the flow-through tax aspect and flexibility of a partnership. An LLC can opt whether to be taxed as a corporation, as a partnership (if it has more than one member) or as a disregarded entity (if it has a single member).
New York: The main entity types in New York are (i) Limited Liability Company (LLC), which is an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. It combines the limited liability of a corporation with the flexibility of a partnership. The owners of an LLC are defined as “members”. An individual, a corporation, a partnership, another limited liability company, or any other legal entity can be LLC members; (ii) A business corporation (Corp. or Inc.) is a legal entity separate and distinct from the individual(s) who compose the business. It has rights and abilities similar to those of a natural person. Principal features are perpetual duration, limited liability and easy transferability of interests.
2. Entity holders
U.S. states generally allow business entities to have a single owner in general. The owner does not generally need to be a resident of that state, or of the U.S.. Neither does the entity's manager. States (such as New York and Florida), however, require that the entity have a registered agent in the state, so that the agent receives any summons or notifications in the name of the entity.
3. Opening a bank account in the U.S.
U.S. banks generally no longer open a bank account for foreign entities. They do open bank accounts for newly-created U.S. entities. In order to open a bank account, you generally need to either be physically present at the bank or to appoint a representative who can be physically present for you. An account can be created in a matter of days.
Prepared by Jose Rubens Scharlack and Giulia Sambugaro.
Jose Rubens Scharlack is an attorney in the United States of America (licensed in Florida) and in Brazil (licensed in São Paulo) who specializes in tax law and has written innumerous articles on the matter. He is the founding partner of Scharlack PLLC, a Florida law firm, and Scharlack Advogados, a Brazilian law firm. Rubens can be reached at jr@scharlack.legal.
Giulia Sambugaro is an attorney in the United States of America (licensed in New York) who specializes in international and domestic commercial transactions, and in corporate law. She is of counsel of Cea Legal P.C., a New York law firm. Giulia can be reached at gsambugaro@cealegal.com.