When does tax residence start for an immigrant?

It is important to distinguish between tax residence and permanent residence, as they are not the same. Assessing when a foreign national’s tax obligation in the United States begins can have various dimensions and involve some complexity. However, in general, a foreign national becomes a formal U.S. resident for tax purposes after being granted lawful permanent resident status and physically residing in the United States for six months.

All foreign nationals, whether they relocate through the EB-5 program or other means, are required to pay two types of taxes: income tax and estate tax. Each tax category has a different resident status start date.

An EB-5 investor is obligated to pay income tax if any of the following scenarios are applicable: (i) The EB-5 investor has been issued a green card in which case the resident status start date is the date that lawful permanent residency was granted along with physical residence in the United States, (ii) the EB-5 investor passes the substantial presence test or (iii) the EB-5 investor chooses to be classified as a U.S. resident for tax purposes. Of the three criteria, in determining a resident status start date, the substantial presence test takes precedence if more than one qualifying factor is applicable to the EB-5 investor or foreign national.

An EB-5 investor is obligated to pay estate tax based typically on the date they decided to remain permanently in the United States. In determining the start date for estate tax, other factors such as the frequency of travel in and out of the United States and information offered on their EB-5 petitions may also be used.

Even prior to being formally recognized as having U.S. resident tax status, EB-5 investors and foreign nationals are obligated to pay taxes if they are residing in the United States. Known as non-resident aliens (NRAs), these foreign nationals may be obligated to pay additional taxes subject to any existing agreements between the United States and their respective home countries.

As an NRA, an EB-5 investor who profits from their EB-5 investment as a partner gaining revenue from a lucrative EB-5 business or project must pay standard income tax rates. In the meantime, the estate tax that U.S. citizens and permanent residents must pay is equally applicable to NRAs.