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February 08, 2019
The obligation to pay taxes is compulsory for taxpayers who practice taxable events in their respective jurisdictions, or even in other countries, depending on the business they conduct abroad. In this extraordinarily complex tax world, assumptions are dangerous. However, where appropriate, tax planning is used worldwide as an essential tool to reduce tax costs in a completely licit manner, and must be done prior to the occurrence of the taxable event, otherwise it will not be considered valid by inspection or even may be considered a tax fraud.

The situation could become more complex when the tax payer has an intention to change the tax domicile to another jurisdiction. In this case, it is necessary to understand what, when and on which circumstances the law will be applicable. All variables are important for the elaboration of a consistent and efficient pre-immigration tax planning, among them: the relation of existing goods in the country of origin, the nature of the income that will remain in the country of origin and the type of business the taxpayer will perform in the country of destination.

Both Brazil and the United States adopt the principle of universality regarding international taxation, which makes it mandatory to declare and tax all income received by the taxpayer both in the country of their respective tax domicile and abroad. This principle, however, does not necessarily indicate that there will be double taxation, since the income taxed abroad can be offset at the tax domicile. This applies to both countries, as a result of international agreement, but does not mean the solution of all problems, since the Brazilian and US tax system are completely different.

In general terms, it can be said that the transfer of Brazil's tax domicile to the US, combined with the maintenance of goods and businesses in both countries, without a pre-immigration planning, will inevitably bring unpleasant surprises to the taxpayer, that, in most cases, could be avoided.
Just to illustrate, one of the biggest problems faced by Brazilian immigrants in the US is the difference in tax treatment for dividends. While most Brazilian companies are taxed on gross income and the distribution of profits is exempt, most American companies are not taxed at the corporate level (except corporations), but the distribution of profits is taxed on the individual. To mitigate this situation, a foreign corporation may wish to make a “check the box” election to ensure that foreign tax already paid by the company is credited to the partner after becoming a US tax payer. However, the situation must be analyzed on a case-by-case.

Furthermore, with respect to this, if the tax payer is a partner of a Brazilian company, treated as a partnership (disregarded entity) for US tax purposes, the existing assets of the company are considered assets of the partner, becoming possible to evaluate the assets at market value and reduce future earnings of capital gain, after the partner becomes a US tax resident.
Notwithstanding, concerning about personal assets, before becoming a U.S. resident, a taxpayer can make irrevocable gifts to non-US persons in trust. Thus, the taxpayer may avoid US income taxes on future income earned by the gifted assets and may also avoid later U.S. gift and estate taxes on the transfer of those assets, increasing the exemption basis, just because the now US resident no longer owns the assets for US tax purposes.
In conclusion, is easy to generalize, but the correct planning for each taxpayer should be customized according to the circumstances of each individual taxpayer. Developing a good strategy offers several benefits and additional savings, which are only noticed in comparatives prepared by skillful and expert advisors. In the end, a necessary and well-done tax planning guarantees, at least, full return of the investment.

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Piquet Law Firm

1000 Brickell Ave., Suite 201
MiamiFL 33131

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