~ Immigration Tax Planning ~
Reorganize Foreign Corporations
Often, potential immigrants have existing corporations or other business entities organized in various jurisdictions throughout the world. This is especially true for those immigrants coming from countries which only tax income arising in the home country - so that income earned by "foreign" corporations does not generate any home country tax.
As discussed elsewhere in these pages, the U.S. tax laws contain many anti-deferral and penalty tax regimes which tax the income earned by a foreign corporation even if that income is never distributed to the shareholder. To avoid the application of these anti-deferral regimes, it is often helpful to reorganize the ownership of existing foreign corporations.
Usually the objective is to reduce U.S. ownership of the corporation below the threshold which triggers application of the anti-deferral rule. In many cases, this is a fifty percent (50%) test. In other cases, it is acceptable for the overall U.S. ownership to be large, so long as no single individual (or small group of individuals) owns a large percentage. For example, although a corporation may be a controlled foreign corporation ("CFC") if total U.S. ownership exceeds 50%, generally there is no attribution on income from the CFC to the U.S. shareholders unless a particular U.S. shareholder owns 10% of the stock. Note that various attribution rules may cause a U.S. shareholder to be treated as owning more stock for tax purposes than they actually own in their name.
In other cases, such as with respect to the passive foreign investment company ("PFIC") rules, the percentage of U.S. ownership is not the most important issue. For a PFIC, the relevant triggers are the percentage of passive income and the percentage of assets held for the production of passive income. In that case, it may be necessary to combine a company conducting an active business with another company which has mostly passive investment assets to avoid having the investment company be a PFIC for U.S. tax purposes.
These examples barely scratch the surface of the potential benefits from reorganizations. As with the establishment of foreign trusts, it is best to perform these reorganizations prior to taking up U.S. residence.