How can non-US investors -- from Europe and Asia -- lower their taxes and diversify their portfolio using the US system? What tax problems must one avoid? We help our world-wide clientele deal with the very complicated US tax code so that they do not miss out on any opportunities.
Regardless of your citizenship status, if you want to have some of your portfolio invested in the US financial system then we can help you. We find that the best way to explain how some of the complicated tax strategies work is with real-life examples.
So let's talk about Wu. He lives in Hong Kong and is married with two children. He makes $300,000 a year as an executive. He has a stock portfolio of $2.5 million and rental real estate in Hong Kong and Singapore of about $4.5 million. He has one life insurance policy of $500,000.
He read that the US is one of the best places for a non-US person to invest as rental income and stock dividends are not subject to income tax, and he can defer gains on real estate indefinitely. While he likes Hong Kong, he appreciates the value of diversifying.
While Wu would avoid US income taxes by investing in real estate and stocks as a US-person, all of these assets would be subject to the US estate tax if they are titled in his name! The top US estate tax rate for non-US persons is 40%.
We tell our clients --- never own stocks, securities or real estate in your own name if you are a non-US person.
If you want to avoid estate and income taxes, we will want to structure your portfolio using various US corporations or LLCs along with various foreign companies at a minimum. We can help non-US persons set up the proper structures.
We do not offer investment advice; having a professional adviser is a great idea.
For some of our clients, investing in a US life insurance policy works out best for them. The problem with life insurance is that it makes people think of their own death, and sometimes there are high mortality costs which make it an inefficient investment vehicle. Also, management and commission fees can drag down the portfolio's performance. But the advantages of life insurance are significant. Investments grow tax-free, and you can take tax-free loans. The US insurance market is highly stable and politically secure. It can be a great place to put a large portion of your portfolio.
Private Placement Life Insurance (PPLI) essentially allows you to pick a portfolio you wish to invest your policy in and has lower management costs. PPLI also offers more flexibility on how to pay into the policy.
Regardless of a standard whole life policy or a PPLI, a US life insurance policy can provide significant tax benefits while "insuring" against a change in lifestyle. Here's the real benefit: No matter where he goes, no matter what changes in his life, Wu doesn’t have to change anything. The income earned in a US life insurance policy will be income and estate tax-free, while his investments are safe and secure.
If he decides to live anywhere in the US, he can --- all tax-free. And remember, California has a top tax rate of 13.3% that Wu won't even need to consider (although his neighbors will).
Now, what if Wu lives in China? How can we deal with capital controls?
If we assume we have no workarounds, then Wu can get $50,000 per family member per year, for a total of $200,000 each year. If he bought a US life insurance policy, in a little over four years, that policy would be worth $1 million USD. And here’s the thing— he can take loans against the policy. Maybe 5 years, 10 years in the future, his children are in college in the US and decide they want to stay in the US. Maybe Wu will change his mind and want to become a US person then. Perhaps he'll look into the EB-5 investor program. In this case, Wu has immediate access to his funds and has the flexibility to make the lifestyle change he wants to.
Thinking forward: The EB-5 is a great program but is currently wait-listed for Chinese. The E-1 and E-2 programs are great but Chinese citizens do not qualify. Something to think about is getting citizenship in countries that do have E-1 treaty...countries like Brunei, Taiwan, South Korea, Mongolian, Philippines, Singapore, Thailand — and Australia. E-1 has no wait list.
Here's another way to work around those capital controls. Once you give up Chinese citizenship, the capital controls are gone. We had a married Chinese couple in the US where the wife gave up citizenship. All of their stocks were previously moved into her name. But once she was no longer a Chinese citizen, she sold her Chinese stocks and transferred money into new US investments.
There are other more elaborate ways to avoid capital controls, but as you can imagine they require extra special precautions --- these are things we have helped many investors with.
We can work with your legal team and advisers already in place to implement a strategy that’s going to balance your desires and objectives with a solid strategy. You or one of your advisers can contact us to discuss your unique goals. We have clients from all over the world and are very familiar with tax treaties from countries on every continent.
You can also call us at 888-727-8796 or email firstname.lastname@example.org.
We invite you to review success stories and case studies of clients of ours.