Brian was invited to an event in Palo Alto hosted by the Asian Commercial Professional to discuss the procedures and tax implications on Foreigners investing in real property in the U.S.
Foreign Investment in U.S. Real Property Asian Commercial Professional
1. Rowbotham
& c o m p a n y l l p
Rowbotham & Company
101 2nd Street, Suite 1200
San Francisco, California 94105
www.rowbotham.com
(415) 433 1177
Asian Commercial Professionals
Foreign Investment in U.S. Real Property
EB–5
June 18, 2014
Brian Rowbotham 羅 博 文 br@rowbotham.com
Destination USA
2. Rowbotham
& c o m p a n y l l p
$1m (W)
Green Card
Resident
$1m (H)
NR
Visits
E–2 Investor
Destination USA
Business & Investment Visas
EB–5L–1
U.S. Operating
Company
X
Foreign
Company
U.S.
Subsidiary
• U.S. affiliated company formed
• Employee relocation
- 1 year employment in foreign country
• Managerial expertise
X
Foreign
Company
U.S.
Corp
• Substantial investment into U.S. Corp.
- Cash
- IP (software, patents)
• Talent
• Business plan
X Angels
IP
H1–B
Foreign Hire in U.S.
Employment by
U.S. Company
Green Card
• Employees
• Quotas
• Must not displace U.S. workers
1
• Investors
- China
- S. Korea
- India
• Creates U.S. jobs
3. Rowbotham
& c o m p a n y l l p
Offshore Jurisdictions
BVI (British Virgin Islands) and Others
2
4. Rowbotham
& c o m p a n y l l p
Destination USA
EB–5 Investor Profile
Foreign
&
U.S.
Investing
GP
Foreign Family
Certified Real Estate Development
LP
$1 mm or
$500,000
Status
- Green card issued
- Family resides in CA
- Founder/spouse runs businesses in China
- U.S. resident subject to worldwide taxation
3
Family - Happy in Palo Alto
- Home purchase
- Investing
5. Rowbotham
& c o m p a n y l l p
EB – 5 Program
“Match.com” for Investors and Project Managers
China
Investors
Independent
Investment
and Advisory
Firms in
China
Sales &
Seminar
Events in
China
China-based
Licensed
Immigration
Consulting
Firms
Intermediaries
and
Consultants
Regional Centers
and
Private Projects
$
$
Beijing
Shanghai
Guangzhou
U.S.
New York
Boston
Houston
Los Angeles
San Francisco
Investors - Seminars – Trips to U.S. Projects evaluations
U.S. immigration lawyers Processing EB – 5 with USCIS [50% success rates]
Securities law on U.S. & China Immigration lawyers, USCIS qualification of projects
Introductions Projects
$
X
X
X
X
X
X
X
X
X
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6. Rowbotham
& c o m p a n y l l p
Destination USA
Nonresident Gift & Estate Tax Planning
5
Gift Tax (1) Estate Tax (2)
U.S. Real Property
Direct Ownership
Ownership through
- U.S. Corporation Shares
- Foreign Corporation Shares
- U.S. Partnership Interest
- Foreign Partnership Interest
Exclusion Limits $14,000 $60,000
Yes
No
No
No
No
(1) Tangible U.S. property subject to gift tax
(2) Property “situated” in the U.S. [e.g. incorporated company]
(3) Estate tax exposure minimized if operations and control are outside of U.S.
Yes
Yes
No
Yes
Maybe (3)
7. Rowbotham
& c o m p a n y l l p
Destination USA
Foreign Investment in U.S. Real Property
6
Tax Rates
Operating Income
Sale / Gain
Second Level Dividend Tax
China/Hong Kong **
Personal Tax Returns Due
Estate Tax Exposure
* Nongrantor trust
** No tax treaty with Hong Kong
39.6% 39.6% 39.6% 35% 35% 35%
20% 20% 20% 35% 35% 35%
-0- -0- -0- 10/30% 10/30% 10/30%
Yes Yes No – – –
Yes Yes No No Yes No
CN
USRP
CN
USRP
LLC
CN
USRP
Trust*
Direct Ownership
CN
USRP
CN
USRP
CN
USRP
BVI Ltd. U.S. Inc.
BVI Ltd.
U.S. Inc.
Corporate Ownership
8. Rowbotham
& c o m p a n y l l p
Destination USA
Green Card Status
7
(a) Worldwide Income Tax and Reporting [FBAR, Investments]
(b) What if substantial presence in China continues?
- File nonresident tax return [Permitted under U.S.-China Tax Treaty]
- Foreign [China source] income exempt from U.S. federal tax
(c) Immigration
- Regulations discourage filing nonresident returns
- Filing nonresident returns will not cause loss of green card
- Breaking ties, lack of connections with U.S. will cause forfeiture
of green card
9. Rowbotham
& c o m p a n y l l p
1. Consider establishing a foreign or U.S. trust for estate planning purposes. If assets are located in one’s
country of origin, it may be necessary to consult with local counsel to coordinate legal and tax issues. The
use of trusts may not work in civil law jurisdictions, e.g. France and Germany.
2. Determine if accelerating gift planning or contemplated sales of assets prior to entering the U.S. will save
global tax.
3. Explore tax strategies that will step up the tax basis of assets to their fair market value so only appreciation
after becoming a U.S. resident will be taxable in the U.S.
4. Review existing investment structures to determine whether there will be adverse tax impacts under U.S. tax
laws.
5. Stock options, when exercised, usually generate ordinary income in the U.S. that is taxable at the top rate of
39.6%. Consider exercising options prior to arrival.
6. Review deferred compensation and retirement benefits, to determine how to efficiently access income
minimum tax before and after arrival.
7. Foreign stock plan: Check whether vesting will be taxable after entering the U.S. 83(b) election time may
have expired.
8. Plan your timing for arrival. Arriving in the last half of the calendar year will usually result in nonresident
status for the full year. Foreign income and capital gains during the year should then be exempt from U.S.
tax.
9. If you are being relocated to the U.S., consider whether you should be employed by the U.S. or foreign
affiliate and whether you should be covered by social security in the U.S. or in your home country.
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Destination USA
Pre-Arrival Checklist for Foreign Executives and Company Founders
10. Rowbotham
& c o m p a n y l l p
10. If you are in the U.S. for less than 183 days in the year, you may be exempt from U.S. tax under the relevant
income tax treaty.
11. Transfer appreciated assets to a foreign trust or foreign company prior to arrival to avoid triggering tax will on the
appreciation.
12. Expatriation: If after 7 years of residence as a green card holder, you relinquish your green card and leave the
U.S., you may be subject to an exit tax on appreciated assets. To minimize this risk, you may wish to defer
obtaining your green card if your stay in the U.S. is not permanent.
13. Reporting bank balances and foreign investments is required under federal and state rules. The following IRS
forms need to be filed:
- FinCEN 114 Foreign Bank Account Report – For balances in excess of $10,000
- Form 3520 Receipt of any distributions or benefits from a foreign trust
- Form 3520 Receipt of gifts or bequests over $100,000 from a foreign person
- Form 3520A Annual return for a foreign trust
- Form 5471 Return of U.S. person in certain foreign corporations
- Form 8865 Return of U.S. person in certain foreign partnerships
- Form 8621 Investment in a passive foreign investment company (e.g. foreign mutual fund)
- Form 8938 New in 2011 – Statement of foreign financial assets
Caution: Many foreign holding structures may fall within these reporting requirements.
Significant penalties will be assessed if appropriate reporting is not done.
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Destination USA
Pre-Arrival Checklist for Foreign Executives and Company Founders (Cont.)
11. Rowbotham
& c o m p a n y l l p
Destination USA
Accountants & International Tax Consultants
Brian Rowbotham is the founder and partner in charge of the firm’s international tax practice. Mr. Rowbotham has 35
years of experience in the cross-border tax planning structures for real estate. He has given presentations on real estate
tax strategies in Hong Kong, Shanghai, Guangzhou, Mumbai, Singapore, and throughout Europe and the U.S. He is a
frequent guest speaker at the Haas Business School, UC Berkeley on international tax where he received his bachelors
and MBA degrees. In 2012 he was awarded the Distinguished Service Award by the California CPA Society for support of
the profession and was featured on the cover of the California CPA for doing business in China.
Email: br@rowbotham.com
Harriet Leung is the partner of advisory services at Rowbotham & Company in San Francisco, heads the firm’s substantial
Asia practice of high net worth individuals and families. Ms. Leung also works with many technology startup companies in
multi-media gaming and social media and Asian investment in U.S. real estate. Ms. Leung has spoken at various tax and
financial conferences in China, Hong Kong, Thailand and the U.S. Ms. Leung serves on the Board of Directors for the
Hong Kong Association of Northern California where she recently organized and chaired a highly successful event on tax
and immigration planning for EB-5 investors and is a frequent speaker on this subject. Ms. Leung is originally from Hong
Kong, and moved to the U.S. in 1991. She has a Bachelor’s degree in Accounting and an MBA in Finance with honors
from Golden Gate University, and is a Certified Public Accountant in California.
Email: hleung@rowbotham.com
Rowbotham & Company is based in San Francisco. Its practice is unique with its global clientele in Asia and Europe with many of its clients being foreign
institutions and ultra high net worth families investing in U.S. real estate. Clients include large institutional investors in the U.S., and real estate funds in the U.S.
and foreign countries. Projects in the past include real estate structures for joint ventures by foreign governments from Middle East (Kuwait, Qatar) and Germany.
Private investment structures involve large investment funds based in Europe and Asia and with publicly traded enterprises and high net worth families.
The firm’s practice in this area was established in 1990 and is well recognized as one of the premier firms on the West Coast with its consulting and advisory group of
experienced accountants and lawyers. The firm is a member of Geneva Group International, an organization of professional firms in over 100 locations worldwide.
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12. Rowbotham
& c o m p a n y l l p
Destination USA
Accountants & International Tax Consultants
Peter Trieu is a Partner at Rowbotham & Company. His practice focuses on advising clients regarding domestic and
international tax planning and compliance. He also assists clients with their estate plans. His clients include entrepreneurs,
multi-national families, high net-worth individuals and businesses. Prior to joining the firm, Mr. Trieu worked for several
years as a Trusts and Estates attorney. Mr. Trieu is an attorney licensed to practice law in the State of California. He
earned a Bachelor of Arts in Business-Economics with a minor in Accounting from University of California, Los Angeles. He
graduated cum laude from University of California, Hastings College of Law, where he had a concentration in taxation, and
earned a Master of Laws (LL.M.) in Taxation, with honors, at Golden Gate University
Email: ptrieu@rowbotham.com
Cindy Hsieh joined Rowbotham and Company in 2001. Her experience includes providing tax consulting and compliance
services for domestic and international businesses, and high net worth individuals. Ms. Hsieh specializes in tax planning
and estate tax planning for multi-national families and has clients in the venture capital, high technology, and real estate
sectors. Ms. Hsieh speaks fluent Mandarin.
Email: chsieh@rowbotham.com
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Phillip Lau is a Tax Manager at Rowbotham & Company. His practice focuses on advising corporate and partnership
clients with U.S. inbound and outbound transactions, multi-state sales and income tax planning, and federal tax issues.
Prior to joining Rowbotham & Company, Mr. Lau worked in a public accounting firm, as well as served as head of U.S. tax
operations for a multi-national energy supply and trading company. He is a licensed attorney in the State of California.
Mr. Lau graduated from the University of California Berkeley with Highest Honors earning a Bachelor of Arts in Business
Administration. He also received a Doctor of Jurisprudence from the University of California Los Angeles.
Email: plau@rowbotham.com