GOING DEEP: How Grenadian Nationality Can Deliver Future Tax Savings on Global Income

By Jose Latour

As we've been saying for the past few months, LatourLaw came to the clear conclusion that the ONLY Citizenship-By-Investment (CBI) passport program which makes sense for Vietnamese (and Chinese, for that matter) investors is Grenada's.  There are many reasons for that conclusion, but the primary one - and the one being discussed most online - is that only Grenada offers its new citizens the opportunity to invest in the U.S. through an E-2 Treaty Trader visa, allowing the investor's spouse to work and children to attend U.S. public (and private, if desired) schools.)

The next step in that dialogue is in discussing how LONG a family can live in the U.S. on an E-2 visa (Answer: indefinitely, with 5 year renewals for Grenada passport holders) and, ultimately, how this can possibly one day turn into U.S. permanent residency.  Today's "GOING DEEP" article applies the brakes at this point on the conversation and asks another question:

"What if become a U.S. resident is NOT the best thing for me and my family?"

As I've learned more and more about today's Grenada, the opportunities which exist in that country for entrepreneurial Vietnamese investors who procure Grenadian nationality are ever expanding.  As one simple example, consider the conversation Monica and I had last month with St. George's University's Vietnam representative, Ben Donnelly.  Ben wondered allowed how a teeming and diverse island with over 6000 resident students survived without a Vietnamese restaurant...or even a Phở food truck!  (As a restaurant owner myself, I could name another dozen ethnic cuisine and food/beverage options which would make a killing in Grenada if only someone would open them!)

The thing is this: as "interesting" as the U.S economy is during the reign of Mr. Trump, immigrating to the United States comes with a very high price for people who have a high net worth: global taxation.  When you become a "tax resident" of the United States, you don't just pay income taxes, capital gains taxes, estate taxes, etc. on what you own in the U.S....you pay it on property and assets all over the world.  So, for people who are leaving Vietnam but who intend to keep owning companies and property they may one day sell, it is critical to understand what U.S. global taxation means BEFORE you are subject to it.

The specifics of U.S. tax laws are massively complex and outside of what we can cover here, but what you DO need to know up front is that it isn't only U.S. legal residents who become liable for worldwide taxation...it's anyone who becomes a "U.S. tax resident" within the meaning of U.S. laws.  How do you become a "tax resident" if you are not an actual U.S. resident?  Well, it's pretty complicated - you can find the official answer from the U.S. Internal Revenue Service here - but it's called the "Substantial Presence Test".  Here's an excerpt from there which gives you the basics and an example:

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
   • All the days you were present in the current year, and
   • 1/3 of the days you were present in the first year before the current year, and
   • 1/6 of the days you were present in the second year before the current year.

Example:

You were physically present in the U.S. on 120 days in each of the years 2012, 2013, and 2014. To determine if you meet the substantial presence test for 2014, count the full 120 days of presence in 2014, 40 days in 2013 (1/3 of 120), and 20 days in 2012 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2014."

Yes, it is tricky (and that's why we are developing an app which does the work of calculating this for our clients!).   But it is very important and the more you think about it, the more you begin to realize that this isn't something that just the super-rich have to worry about.  It's food for thought for ANYONE who is leaving anything of substantive value in Vietnam.  This is why we HAMMER our EB-5 investors continuously about pre-immigration tax planning...once you land in the U.S. as a resident (or once your physical presence in the U.S. meets the "substantial" definition above"), it's too late!  So you have to plan.

Consider a modestly affluent Vietnamese investor - let's call him Mr. X - who can afford EB-5 but who is a professional and will take up his new life in the U.S. by getting a new job with a U.S. company.  It is clear that Mr. X will need to pay income taxes on his U.S. job earnings, but what if he left his parents in Vietnam on their beautiful property in the outskirts of Da Nang.  With Da Nang's growth, it is likely that property will be worth, say, over U.S. $10 million in the next 10 years.  So, in 10 years, Mr. X and his family are happily living in America when his parents pass away and he gets an offer from a developer to buy the property in Da Nang for U.S. $10M...because he is a U.S. resident, he will pay millions in capital gains to the U.S. government...even though the property is in Vietnam!

How could he prevent this?  Well, one option, had Mr. X had the foresight to discuss this with experienced U.S. attorneys and accountants, would have been to make MRS. X the EB-5 investor, securing U.S. residency for her and the kids...but not for Mr. X.  Instead, if his plan was to live in the U.S. with the family, he could have pursued an E-2 visa through Grenada citizenship and opened an modest franchise and kept track of his time in the U.S. to avoid hitting the "substantial presence" benchmarks.  With his Grenada passport and a Grenada residency card, Mr. X can benefit a LOT from Grenada's very favorable tax rules, which include no taxation of foreign income or capital gains along with other very positive benefits. 

I know what you are thinking: "what a PAIN in the neck!"  It is! I agree!  But at year 10 for our fictional Mr. X, he would be pocketing millions of dollars of savings from the sale of the property instead of giving to the U.S....and he would have been essentially living in the U.S along side his resident family through controlled presence in his E-2 status.  It will ALWAYS be a case-by-case consideration but in the example of Mr. X, some strategic planning from day one would have ultimately saved him and his family over $2 million U.S. dollars (under the current capital gains tax regimen.)

Any Vietnamese investor looking for a future in the U.S. needs to do so with ALL the information in hand.  He or she needs to understand not only how U.S. tax laws work but how to properly structure their family's financial future through the use of favorable tax residency status, trusts, and advance estate planning tools which LatourLaw can help you realize through our global team of partners in these disciplines.  At the end of the day, the money you save can define the future for your children and grandchildren!

We are always here with the answers you need, so contact LatourLaw Vietnam when it's time to make serious plans.

Jose

Tags: