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Certified Public Accountant

Many people dream of coming to the United States, but the process entails crucial tax and investment issues – that need to be addressed. There are important things to think about—for example, Indian nationals with mutual funds back home, would need to file Indian investment reports with the Internal Revenue Service (IRS). 

 Other issues such as comprehending the intricacies of the double tax avoidance agreement (DTAA), This article explores the difficulties of applying the double tax avoidance agreement (DTAA) – so that taxpayers do not get unfairly taxed in two jurisdictions at once, on all of their world-wide income.

 The Tax Landscape for NRIs in the US

 In contrast to India’s residence-based taxation, the US taxes individuals based on residency and tax status.  Tax status considers your VISA / citizenship status in this calculation.

To illustrate, consider the hypothetical example of “Karin” – as his family moves from India to the US, the family faces taxation on both domestic and overseas income.   The DTAA treaty between India and the US becomes crucial, allowing them to pay taxes solely on the difference between the two countries’ tax rates.

For individuals like Karin, with investments in Indian mutual funds and ULIP (Unit Linked Insurance Policies );  PFIC guidelines add complexity. Compliance involves forms such as FBAR and Form 8621.  Failure to report holdings can lead to severe penalties, including passport revocation and significant tax liabilities.

Strategic Investments for Green Card Holders:

 As Karin transitions to a green card holder, strategic investment options are crucial. Investing in Indian equities through US-based ETFs or utilizing Indian Portfolio Management Services (PMS) provides exposure to the Indian market without triggering PFIC compliance, reducing the tax and compliance burden.

Conclusion:  Tax compliance across jurisdictions is critical, and even if one does it on their own – it can lead to costly mistakes.  If you have a question or need guidance, feel free to contact us on cross-border taxation issues.

 Does a foreign-owned LLC have to pay taxes?

It depends – note that a “single-member limited liability company”  aka ‘SMLLC’  that is foreign-owned or not, will automatically be treated as a “disregarded entity.”   These entities are legally recognized but exempt from income taxation unless their foreign-owned SMLLCs generate income that is FDAP or directly related to US trade or business.

This is one of the reasons why so many foreign nationals create SMLLCs rather than C corporations. U.S. tax law subjects all profits of a C corporation to double taxation. Double taxation occurs when profits are subject to corporate taxation while dividends given to shareholders are taxed separately.

What happens if I don’t file what I need to?

Fine & Long Waiting Times

 Penalties are severe if an SMLLC with at least 25% foreign ownership fails to file Form 5472. The usual penalties, which was $10,000 previously, have been increased to $25,000.

 In conclusion, As Karin enters the complex realm of US tax and investment regulations, a personalized understanding is crucial. Tailoring strategies to their unique situation—from PFIC complexities to foreign-owned LLC intricacies—will be key to a successful financial transition. Seeking professional advice and staying informed about changing tax regulations ensures Karen’s journey to the US is not just a dream but a well-planned and financially secure reality.

 Ensure that your dream of moving to the US is not only a reality but a well-planned and financially secure one. Contact us today for expert advice and a tailored approach to your financial success. Tax compliance across jurisdictions is critical, and even if one does it on their own – it can lead to costly mistakes.  If you have a question or need guidance, feel free to contact us on cross-border taxation issues.