U.S. Federal Tax-saving Provisions For Establishing U.S. Residence or Business

The current U.S. Administration’s ambitious plans to increase federal taxes have largely been postponed during the past 18 months, so foreign individuals and businesses planning U.S. activities should take advantage of existing U.S. federal tax-saving provisions. Here are a few approaches:

Consider Broad U.S. Tax-Reduction Opportunities

  • Elimination of U.S. withholding tax on Portfolio Debt Interest to non-bank foreign lenders has continued!
  • Corporations – including those owned by foreign businesses & other foreign investors – are taxed at a maximum federal income tax rate of 21%; however, the current U.S. Administration has just enacted a separate 15% minimum tax on large corporations which have over $1-billion in annual financial statement income.
  • Low tax rates of 10.5% or slightly over 13% apply to much foreign source income.
  • Unlimited current deduction (rather than depreciation over future years) generally applies to capital expenditures for qualified business tangible assets.
  • For owners of partnerships, limited liability companies & other pass-through entities, a 20% deduction applies to many types of business income, including for such entities owned by foreign persons.
  • Gift and Estate Tax exemptions for U.S. citizens and domiciliaries exceed over $12-million and heirs receive tax basis in inherited assets at fair market value at the decedent’s passing.

Take Advantage of Tax-Free Dispositions for Foreign Investors Before Acquiring U.S. Residence

  • Generally, foreign owner pays no U.S. federal capital gains tax on disposition of U.S. intangible capital assets such as stocks and securities.
  • Rather than owning U.S. business assets directly or through a partnership or limited liability company, foreign owner may use U.S. corporation whose shares the owner may sell tax-free, if one-half or less of the corporation’s assets’ value is attributable to U.S. real property interests.

Investigate tax-benefited dispositions generally available

equally to U.S. & foreign investors

  • Qualified Opportunity Zone Investments
  • Enterprise Zone Investments
  • Qualified Small Business Stock
  • Like-kind Real Estate Exchanges

Consider Specialized Tax & Government Financing Benefits

  • Technology and climate-related investments triggering grants, special tax credits, and deductions.
  • Oil & gas investments, including drilling costs deductions, working interest active business deductions, and percentage depletion deductions.
  • Life insurance products permitting tax-free income build-up, premium financing and subsequent internal financing, and tax-free loans of policy cash values.
  • Charitable contribution deductions for Cash, appreciated Securities or Art, Intellectual Property, Conservation Easements, Charitable Remainder Trusts, and other assets.

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