Mobility Matters Express video series

Hello and welcome. This Mobility Matters Express highlights another tricky area for non-US citizens inbound into the US. Upon becoming a U.S. resident, a foreign national’s investment portfolio might turn out to contain some nasty surprises.  Many mutual funds and other collective investment vehicles based outside the United States are subject to a special punitive tax regime and reporting under U.S. law.

Certain entities established outside the United States whose income is mostly passive ( such as dividends, interest, capital gains), or that have a certain percentage of assets that produce,passive income, are referred to as passive foreign investment companies, or PFICs. The PFIC definition is generally broad enough to apply to most non-U.S. mutual funds, unit trusts, investment trusts, open-ended investment companies, and other similar investments commonly issued to retail investors outside the United States.

As mentioned, PFICs are subject to a special punitive tax regime and to annual information reporting requirements under U.S. law.  To avoid any headaches and surprise tax costs, it is recommended that individuals review their investment portfolio with a tax or investment advisor prior to establishing U.S. residency – there are certain elections that might mitigate the rather harsh tax consequences of holding such assets and it may be desirable to consider other actions in terms of modifying one’s portfolio.  Again – the key is to do this PRIOR to arrival.  Once someone gets here, it may be too late.

Thanks for listening, and we will see you next time.  Have a great day!

Hi, I am Martha Klasing from KPMG’s Washington National Tax Practice and welcome to this episode of Mobility Matters Express.

It’s quite common for non-US citizens working temporarily in the United States to continue to participate in their home-country pension or retirement plans while on assignment.  What can be a surprise to learn is the contributions to such plans, and potentially the earnings, may attract a US tax liability.

Although non-US pension plans may enjoy favorable tax treatment in the home country, that tax advantage status  generally does not apply in the United States...

Special U.S. tax rules also apply when transferring funds from one retirement savings or pension plan to another or when withdrawing funds from the plan. A transfer or withdrawal that may be tax-free in the home country may be considered a  taxable distribution in the United States.

In certain situations, an income tax treaty may allow an exemption from U.S. tax, as the United States has entered into numerous income tax treaties that address cross-border pension issues. However, tax treaties are independently negotiated and the terms of each treaty vary so it’s important to review the specific language of the relevant treaty.

The takeaway?  Know before you go.  These rules are complicated  - consult a tax advisor to determine whether any treaty relief is available. A tax advisor should also be consulted prior to taking a distribution from a non-U.S. plan, or transferring funds from one plan to another, while on a U.S. assignment, in order to avoid any surprise tax costs.

Thanks for listening, and we will see you next time.

Hello and welcome to KPMG’s Mobility Matters Express.  As mentioned previously, this episode will focus on some tax traps that non-US citizens inbound to the US should be aware of.

Once a foreign national establishes U.S. residency,  gain from the sale of a principal residence, even if located outside the US, may be subject to tax. The purchase and sale prices must be calculated in U.S. dollars. So, even though there may be no economic gain realized in terms of the home country currency, there may be a taxable gain for U.S.  purposes due to exchange rate fluctuations.

Additionally, U.S. residents may be subject to U.S. tax on the repayment of a mortgage that is denominated in a currency other than the U.S. dollar. Again, this is due to the change in the currency exchange rate between the date the mortgage was obtained and the date the mortgage principal was repaid. Thus, under U.S. tax law, a resident of the United States may be subject to tax on both the gain realized on the sale of the residence and on the exchange gain arising from the repayment of the foreign currency mortgage, even if no economic gain was realized on either transaction in their home country currency.

The same principal applies to the refinance of a mortgage that is denominated in a currency other than the U.S. dollar.  With the refinance, the original mortgage is paid off and replaced with a new loan.  As such, a taxable gain may arise for U.S. tax purposes based on the fluctuation in the exchange rate between the date the original mortgage was obtained and the date the original mortgage was refinanced.

It may seem bizarre that there could be taxable gain when no economic gain is realized (and that is a tough pill to swallow).  The takeaway?  With respect to a home and loans located outside the US, if you are planning on selling or refinancing, make sure to evaluate the options prior to arrival in the US.

That’s it for today and thanks for listening.

Hello and welcome to KPMG’s Mobility Matters Express.   For the next few episodes, we’re going to explore a few tax issues that inbound individuals to the United States will want to consider.  By doing so, some tax traps can potentially be avoided.

The first issue to address is When does a non-US person become a US tax resident.  This is a big deal because US residents are taxed on worldwide income, regardless of source, even if the US residency period is temporary and only for a year or two.  On the other hand, Nonresidents are taxed only on US source income.  One other point – there are all sorts of information reporting requirements that apply to US residents that do not apply to nonresidents.  These reporting requirements can be quite complex, daunting, and time-consuming.

A non-US citizen is considered a US resident if he or she has a green card or is physically present in the United States for 183 “equivalent’ days, or make certain elections to be treated as a U.S. resident.

In general, US tax residency begins on the very first day of physical presence, even if not related to employment. Consider this example – an individual comes to the US on a two week vacation in January, but doesn’t start her international assignment until June.  In this case, she is subject to US tax on worldwide income – and subject to the reporting requirements I mentioned - all the way back to January.    There are some exceptions for minimal days of presence and income tax treaties may provide some relief but here is the takeaway – it’s important to focus on the very first of physical presence – that’s the point where worldwide taxation (and the reporting requirements) kick in.  So, best to do any tax planning prior to arrival.

Thanks for listening, and we will see you next time.

Hello -  I’m Martha Klasing from KPMG’s Washington National Tax practice and welcome to Mobility Matters Express.

The IRS recently issued a Chief Counsel Advice Memorandum that is directly on point with respect to  tax-equalized assignees and the related income taxes paid by the employer as part of the tax equalization program.  The CCA basically reiterates what we already know and confirms how most organizations approach the payroll withholding and reporting for tax equalized assignees.  In a nutshell, reportable wages are reduced by the amount of hypothetical tax withheld by the employer.  Any actual taxes paid by the employer on behalf of the employee directly to the government as withholding represent taxable wages and should be grossed up for taxes.  One point the CCA underscores is the general rule that adjustments or corrections to the amount of taxes paid can only be done within the same calendar year, except in very limited circumstance.  The takeaway - which has always been a best practice - is to calculate hypothetical tax withholding as accurately as possible and make any adjustments needed to actual taxes paid into the US government before the calendar year closes.  Thanks for joining this segment of Mobility Matters Express!

Hello and welcome to KPMG’s Mobility Matters Express.  Included in the recently released Biden administration budget are several proposals designed to simplify the foreign exchange rate gain and loss rules for individuals.  These proposals would be a welcome modernization of some very complex rules that oftentimes catch international assignees and their employers unaware.  One proposal would allow individuals to use an average annual exchange rate to report wages received in a foreign currency rather than using the spot rate.  Another proposal would increase the tax-free exemption for foreign currency gains on personal transactions from $200 to $500 per transaction.  Lastly, and very impactful as it is significant taxpayer friendly proposal is individuals would be allowed to offset the gain on the sale of a foreign personal residence with losses realized on the repayment of a foreign currency denominated mortgage.  Currently foreign currency losses on repayment of a foreign mortgage are not deductible even if the individual realizes a taxable gain on the sale of the residence, so again this would be a very welcome improvement.

The takeaway? Ultimately, it rests with U.S. Congress to pass legislation implementing any of these recommendations. However, these changes could simplify reporting and result in reduced US tax costs, and hence reduced tax equalization and overall assignment costs.  Definitely something we will want to keep an eye on.  That’s it for this segment and, as always, thanks for listening in.

Hello, and welcome to KPMG’s Mobility Matters Express.  On the heels of the Biden Administration’s release of its Fiscal Year 2023 budget proposals, the U.S. Treasury Department published the Green Book, which is an explanation of the tax proposals in the budget.   Some of the proposals, if enacted, could increase taxes for certain individuals. We’d like to draw your attention to a few of them.

One proposal would increase the top marginal tax rate to 39.6% for high-earners (those earning over $450,000 if married filing jointly, and those earning over $400,000 if filing single). Capital gains would be taxed at ordinary rates for individuals with taxable income exceeding $1 million, and a minimum tax of 20% would be imposed on total income for very wealthy taxpayers whose net wealth is greater than $100 million.

Also, carried interests for higher income individuals would be taxed at ordinary income rates and not benefit from the lower capital gains rates. There is no immediate impact on assignees or assignment programs, since these are just proposals, but worth keeping an eye on.  It remains to be seen if these proposals will be legislated. That’s your update for today, thanks for listening in.

Hello - and welcome to Mobility Matters Express.

The IRS released Notice 2022-10 with an updated list of foreign locations with high housing costs for purposes of the section 911.  The Notice is effective for taxable years beginning after 2021. If a location is not listed, then the statutory amount equal to 30% of the foreign earned income exclusion ($33,600 for 2022) applies.  What’s interesting, and a departure from prior years, is more locations experienced a DECREASE in the adjusted limitation amount versus an increase.  This will impact individual’s US tax cost.  Out of 266 total locations listed, 151 have seen a decrease, including some locations usually associated with a high cost of living - notably Tokyo, Riyadh, and Zurich.  Hong Kong – the city with the highest limitation amount at $114,300 remains unchanged.  Only 20 locations were increased - mostly located in Canada. The takeaway?   If the newly released housing limitation amounts are higher than those provided for 2021, taxpayers may elect to use the higher 2022 amounts on their 2021 federal income tax returns resulting in additional US tax savings. Thank you for joining this segment of Mobility Matters Express!