Jane Mepham, CFP (00:02.552)

You're a foreign executive coming to the U.S. on the L1 visa. Do you know the three most important considerations?

The Two Types Of L1 Visas

L1 visas are granted to foreign executives or managers coming to the U.S., which means there's a foreign office or foreign company and they have a U.S. branch and they send these executives or managers or specialized workers to come and work in that office.

They're classified into two. L1A is the manager or the executive officer, and then L1B is an individual with specialized skills who is still coming to work in the office.

Now, in terms of the validity of these visas, you initially get it for three years, but the L1A can be extended for up to seven and the L1B can be extended up to five years.

And this is critical for what we are going to address. But if you have, legal or immigration questions around U.S., those are best addressed by an immigration lawyer.

But now let's talk about the three most important financial and tax considerations if you're coming to the U.S. on the L1 visa.

Manasa Nadig, EA (01:27.599)

Yes, yes, yes. Considering that a foreign executive who is here on an L1 visa can be here for a pretty long period of time, these are three broad areas of what we think you should consider. And these are really important to know.

The first is the U.S. income tax filing and compliance.

Then the compliance with foreign financial assets and other assets.

And then lastly, but not least, are U.S. estate and gift tax considerations.

So as always, let me jump right into the U.S. income tax filing and compliance part of it, which...

As you know, when you become a tax resident in the U.S., you must declare your worldwide income and financial assets. And as an L1 visa holder, you are subject to that as well. So what are the considerations of that?

Timing your arrival, that can make a difference. If you're coming in the beginning of the year, then you have to take into account what that foreign income and assets are for the entire year versus towards the end. Doing pre-immigration tax planning would mean working with advisors on both sides, both in the U.S. and in the country where you're from, and maybe looking into investment reorganizations.

And if you're married and if your spouse is going to come here with you to the U.S. or not,they are coming to the U.S., then they are allowed to work here on a dependent visa.

But if they are not, then you have to factor in their status in the for tax planning. And you should always think about what could change if your non-U.S. spouse at some point might join you in the U.S.. So keep all of those big picture things in mind.

Manasa Nadig, EA (03:44.082)

So we did timing, pre-immigration tax planning, the spouse. And another important thing to consider when you're looking at timing your arrival is your substantial presence test. And we've talked about this in a different episode and we link it in our notes. Meeting this test may mean filing a Form 1040 and disclosing your worldwide income for the entire year.

Additionally, to determine if you are eligible for a closer connection exception, consider whether you are in the U.S. for less than 183 days and maintain a tax home elsewhere. A dual status filing based on the number of days you're in the U.S. versus the days you were still abroad as a non-resident alien.

And always looking at the treaty or the double tax avoidance agreement between the country you're a resident of and the U.S. to see what clauses are available to you to maybe mitigate some of all of these or help you with your tax planning. That was the first thing to consider.

Foreign Financial And Other Overseas Assets

Jane Mepham, CFP (05:10.074)

You've addressed a lot in this one thing. So, what I'm going to do is jump straight into point number two. This includes your foreign financial assets and other assets located overseas. You've already alluded to the fact that once you become a U.S. tax resident, you're subject to U.S. taxation in disclosure. And so, the thing you want to think about regarding your foreign assets is, one, do you have bank accounts? Check balances.

Do you have accounts where you just have signatory authority in FBAR and FATCA thresholds?

We joke a lot about you're in the U.S., your cousin adds you to a bank account somewhere overseas and right there, you need to start reporting that account.

So it's getting very clear on what your assets are. Check on your retirement account. And actually, this is both here and overseas. So you want to understand access.

On the U.S. side, you're thinking more about what your goal is, your end goal, as you think about what accounts you want to get into, what are the rollover options, and of course, the U.S. tax treatment.

Again, a lot of this, I know it sounds like I'm confusing the two, but it's both your overseas accounts and your U.S. accounts. Think about your investments.

You want to review your investment account. And the most significant danger of consideration on this is what we call PFIC, Passive Foreign Investment Companies or accounts.

So if you end up with a PIFIC and pretty much almost all foreign-based or foreign-registered mutual funds fall under this, your tax filing that Manasa had just talked about at the beginning is going to be a lot more complicated.

So, you want to examine those accounts, find out what's going to fall under PFIC filing, and come up with a game plan for treating this. And this, of course, includes even things like your foreign insurance, right?.

You need to think about your digital assets, your crypto, what are the reporting and taxation requirements again, because they are overseas and you're expected to report everything.

Jane Mepham, CFP (07:32.638)

If your company is going to be giving you equity compensation, so things like RSU stock options, you really need to be thinking about taxation and the taxation implications.

And again, how they end up being treated depends on how long you're going to be here. I know it's not an easy thing to figure out as you're arriving, but also where you're going to go when you leave and when these things vest. So, there's definitely a lot to be thinking about.

If you hold business interests in foreign countries or companies, you should consider this when making decisions. We need to think about your foreign income. And overall, the goal is we need to plan to be doing not only your tax returns on foreign income, which needs to be reported in the U.S., but most likely you'll need to continue filing your taxes in the foreign country.

We obviously cannot file foreign taxes for you, but the goal is to take all that into consideration. Start putting a plan together for how your overseas CPA or EA will work with your U.S. cross-border tax professional, because it's really the only way to consolidate all this under one roof and streamline it. Manasa, before we jump into three, anything else you want to add to that?

Manasa Nadig, EA (08:59.417)

Yes, yes. The foreign financial asset compliance, and we keep talking about this in our episodes, non-compliance or failure to report these come with humongous U.S. penalties. Just dealing with that can become quite a cumbersome affair. So, understand what

Jane Mepham, CFP (09:00.504)

Okay.

Manasa Nadig, EA (09:28.845)

Jane just talked about, and all of those assets that you have know that they have to be declared if the amounts are past the threshold. Working with professionals on both sides of the border is an extremely important thing to remember. Jane and I just cannot reiterate that enough.

U.S. Estate And Gift Tax Implications

So that being said, you moving on to the next biggest implication or aspect of moving to the U.S. as a foreign executive, we talk to wealthy or high net worth executives moving to the U.S. on L1 visas a lot. And we understand that you've already probably have a big financial footprint in the country where you are.

You have been living and working there for, you know, for a number of years. So we expect that you will have a high net worth investment. Going back to, you know, the aspect of planning for how many years you will be in the U.S., what your future plans out that determines our next part or the next big part, which is the U.S. estate and gift tax implications. So gifting can kind of take on its own ramifications. If you are getting a gift from a non-U.S. person, going over certain thresholds is reportable. Or if you're giving gifts to non-U.S. persons, then that might entail gift reporting or gift taxes also. So think about that.

Think about maybe setting up what are called blocker entities to organize your foreign assets and protect them from U.S. taxation and compliance. There is such a thing called a step-up in basis. And we won't go into it too much because that in itself is an entire episode.

Manasa Nadig, EA (11:52.942)

But step up in basis is an option that you should explore for your foreign investments. And Jane already covered this and I will say this briefly.

If you have holdings in foreign entities, then that needs compliance and declarations. So look at that and see what you want to do with it, where it's going, and how big a part of your tax and financial plan your business holding is going to be.

So you may need to plan for that as well. And of course, the covered expatriate status, if you're going to switch to a green card down the road, all of that comes into the long-term goals and plans on whether you want to stay here in the U.S..or go back to your country down the road and how much of a footprint you already have in the other country and what you want to keep really.

That's kind of what is something that you have to keep in mind no matter what you do, of course, but it gets to be really important if you are a high net worth foreign executive coming to the U.S. on an L1 visa. Anything else you would like to add, Jane?

Jane Mepham, CFP (13:17.71)

So we have those three points. I think the bottom line is, before you actually get to the U.S., work with a tax advisor, a financial planner, a cross-border financial planner, a cross-border tax advisor to get all these things into place. Because if you wait until you get here, it might be too late for some of it.

But if you're already here, let's make sure we fix these three things by addressing those three key points. I think in terms of that, we've addressed the three main considerations. So yeah, I think I'm good there.

Manasa Nadig, EA (13:59.895)

All right, so thank you dear listener for tuning in and listening to our episode. Don't forget to subscribe for more insights. We have a newsletter, we'll send it to you as soon as a new episode drops. So until next time, stay informed and be prepared. Thanks for listening, bye.