Estate & Gift Tax Liability : 8 Things Every Non-US Citizen Should Know

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Estate & gift tax law applicable to a non-US citizens who live, work, or own property in the United States is different than a USA citizen.On death of a domoiciled non-us citizen , the US situs properties may have adverse tax consequences. Similarly, lifetime transfers by non-US citizens may also be subject to US gift tax. This post is therefore dedicated to tax issues pertaining to the estate of a non-us citizen.

Who among non-us citizens is subject to gift and estate tax?

An individual who is considered domiciled in the US
for estate and gift tax purposes is subject to US estate and gift
tax on worldwide assets.

A person is considered to be domiciled in the US for estate and gift tax purposes if he or she lives in the US and has no present intention of leaving.

What are the parameters of determining if you are domiciled in USA?

One very important point to note is that being a domicile for estate and gift tax purposes is quite different than determining US tax residency. So even if you are not a tax resident of the USA, still you may pass the test of domicile for the purpose of estate or gift, therefore liable for a gift or estate tax. So here are parameters to test if you fall in the category of “domiciled in the USA“.

  1. Intent as reflected in various documents like visa applications, tax returns, will, etc.
  2. What is the length of residency in USA?
  3. Do you hold a Green card ? If yes , you are subjects to US income tax on worldwide income even if you are living outside the US.
  4. Country of citizenship and your ties to this country.
  5. Style of living in the US and abroad
  6. Location of your business interests.
  7. In which country you have some basic rights like church affiliations, voting registration, and driver licenses etc

What assets subject to estate tax for domiciled persons ?

If you are proven as a USA domiciled person, your worldwide assets are subject to estate tax in the same manner as US citizens. This is in contrast with a Non-US domiciliary whose estate is taxed only on the value of their assets located in the USA.

What if the property is jointly owned with the spouse?

The answer to the questions depends on whether the surviving spouse was a US citizen or not.

If the surviving spouse was a non-us citizen, in that case, the point of determination is whose assets were used to acquire the property.

If the surviving spouse proves that it was his/her money that was used to acquire the property, tax can not be levied on the estate as it will not be considered as owned by the deceased person.

If the surviving spouse is a US citizen, then fifty percent of the property will be included in the estate of the first spouse to die.

Is there any deduction available to surviving spouse ?

It depends on the facts whether the surviving spouse is a US citizen or not ?

In case of a surviving spouse who is a US citizen an unlimited amount of assets owned by deceased spouse can pass to him/her without being subject to US estate tax. Further, surviving spouse who is a US citizen can also file estate tax return and claim any exemption amount related to deceased spouse not utilized in addition to his or her own
exemption.

If case surviving spouse is not a US citizen, the marital deduction is generally not allowedexcept by virtue of estate and gift tax treaties if signed by USA and country of which surviving spouse is citizen of .Estate tax treaties between the U.S. and other countries may have favorable tax treatment to non-us citizen by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation.

List of countries with which USA has estate & gift tax treaty ?

Following countries have signed estate & gift tax treaties with USA.

Australia, Austria, Canada, Denmark,Finland, France, Germany ,Greece
Ireland, Italy ,Japan ,Netherlands,Norway, South Africa, Switzerland, United Kingdom
.

Is there any special tax estate & gift tax rate in case of domiciled person?

No, the estate & gift tax rate that applies to a US citizen applies to the case of a non-us domiciled person’s estate as well.

An exemption of $60,000 is available against the value of assets includable in the US taxable estate of an individual who was not US domiciled.

Have you tried estate tax calculator?

When a non-us citizen must file estate tax return ?

If the fair market value of the USA situated assets owned by the deceased non-us citizen but domiciled in USA exceeds $60,000, his executor must file an estate tax return, Form 706-NA,

By Prashant Thakur

Prashant Thakur is a tax advisor . He has written two books on tax laws of India. He regularly writes on his paid-only website http://taxworry.com. He is learning about the Internal Revenue Code of USA as many of clients and readers are of India origin and also are tax resident of USA . So . solving their tax issues require reference to IRC of USA.