Analysis of U.S. Tax Policy
According to the implementation rules of the Foreign Account Tax Compliance Act (FATCA) issued by the U.S. Internal Revenue Service (IRS), U.S. citizens and Green Card holders with overseas assets exceeding $50,000 must truthfully report them to the IRS. Failure to do so may result in a penalty of up to $10,000. If the assets remain unreported after notification from the IRS, the penalty can increase to $50,000.
Investment immigrants should not blindly listen to rumors. In fact, U.S. taxation is not as daunting as it seems, because the overseas assets that the U.S. requires to be reported are not total assets, but specific financial assets, such as direct investment income, indirect investment income, business income, and capital gains. Real estate is not included in the reporting requirements; therefore, Chinese Green Card holders do not need to worry about paying U.S. taxes on their domestic properties.
Tips for Reporting Overseas Assets
When reporting overseas assets, "global income must be reported" does not mean "global income must be taxed." Overseas assets held before landing in the U.S. must be reported but are not subject to taxation. Only if this portion of assets appreciates and is subsequently realized may it involve taxation. Therefore, it is recommended that investors conduct a series of tax planning measures before immigrating.
First, consider the family unit: if the wife has a lower income and the husband has a higher income, one might consider having only the wife apply first while the husband waits, so that the husband's assets outside the U.S. will not be subject to taxation on foreign income. Second, consider property management before immigration. For example, one could sell real estate or stocks before immigrating to obtain cash and repurchase them after immigration, or gift them to family members, which can also avoid related tax issues.
U.S. Taxation is Relatively Reasonable; Reasonable Planning is Required Before Immigration
In the United States, although property reporting is relatively transparent, taxation is relatively fair. There is a tax exemption for net income earned by those working or doing business overseas for a long period, known as the "Foreign Earned Income Exclusion." For example, the exclusion amount in the U.S. for 2011 was approximately $90,000. If a couple lives and works abroad together, they have a combined annual exemption of over $180,000 from federal income tax.
Furthermore, China and the U.S. have long implemented an agreement to avoid double taxation. If taxes have already been paid in China, there is no need to pay them again in the United States. For instance, if the Chinese corporate income tax is 20-25%, and dividends to individuals are taxed at 20%, totaling nearly 40%, and the personal income tax rate in a U.S. state is about 15-20%, the taxes paid in China can offset the portion due in the U.S. Similarly, if investment gains from real estate are taxed at 20% in China, while investment gains in the U.S. are taxed at only 15%, the taxes paid in China can offset the U.S. liability. There is no need to worry about being taxed layer upon layer after immigrating to the United States.