Martha Klasing, partner in KPMG's Global Mobility Services practice, discuss what companies need to consider when preparing for U.S. assignments.
As you prepare for your U.S. assignment, there are a number of things you must consider - housing, a new work environment and job responsibilities. You may also be concerned about schools and how your family will adjust to life in the US. Another area that needs your attention -- and one that can be full of traps – is the U.S. tax system. This is one area that really should be considered BEFORE you arrive in the U.S. for the first time. I can’t put enough emphasis on the word “Before”. Your ability to do any U.S. tax planning is much greater while you are still a nonresident. Once you arrive in the U.S., U.S. tax laws will apply. Some income or transactions that would be tax-free for you at home may not be tax free here, and it may be impossible to unwind or change the outcome of a situation after you arrive in the U.S.
Unlike most countries, the U.S. taxes its residents on worldwide income no matter where it is paid or what period of time the income relates to. You might be surprised to learn that some income - totally unrelated to the U.S. – may be subject to U.S. tax and reporting simply because you received it after you became a U.S. resident. For example, if you earn a bonus for work you’ve done outside the U.S., and you actually receive the bonus after you become a U.S. resident, you will have to pay U.S. tax on that bonus. If you pay tax in another country, you may be allowed a credit on your federal income tax return that reduces your U.S. tax liability. However, this may not be true when it comes to state taxes, and unexpected state income taxes can be an unwelcome surprise.
Another fact you should know about the U.S. is that our currency is the Dollar. You must always report your income, and pay your taxes, in U.S. dollars. One situation that often surprises assignees relates to repaying a mortgage in a currency other than the U.S. dollar. Repayment of your mortgage – which can occur when you sell your home OR refinance - is a taxable transaction in the U.S. It’s quite a shock to some assignees that something as common as paying a mortgage in their home country can give rise to a U.S. tax liability simply because of a change in the exchange rate. Be careful.
Exchange rate changes don’t just create an issue when repaying a mortgage. Remember that stock you bought years ago that has since gone down in value? Depending on the exchange rate, selling it while you’re a U.S. resident might actually result in a gain for U.S. tax purposes. This is why consulting with a tax advisor and doing some pre-arrival planning is so important.
Another area that often causes confusion and frustration relates to US information reporting rules for financial assets located outside the United States. There are also complicated rules for taxing certain investments – for example, non-U.S. mutual funds – which can mean paying more U.S. tax than you would expect. Many of these rules were designed for U.S. taxpayers (namely, U.S. citizens), but they also apply to non-U.S. citizens who are in the U.S. long enough to be considered resident. However unfair it may seem, there is no exception for individuals assigned to the U.S. only temporarily. As such, your best option is to know before you go. Take the time before you move to the U.S. to review your situation and see if changing investments or financing arrangements makes sense.
We’ve put together some information for you that highlights some U.S. tax issues that may arise with respect to your assignment, depending upon your circumstances. Tax surprises are never good – that’s why we suggest – in fact, STRONGLY ENCOURAGE, you to read this information and talk with your tax advisor before you arrive in the U.S. Proper planning – before you get here – can help you avoid unpleasant tax surprises. Thanks for your time and we wish you great success with your assignment.
This information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.