FOR LIVE PROGRAM ONLY Expatriation Tax Planning For U.S .

Italy: The retirees tax regimeConditionsThe individuals should:1.have foreign-sourced pension income2.move their tax residence to an Italian municipality having a population not exceeding 20,000 inhabitants locatedin one of the Southern Regions of Italy3.come from States having administrative cooperation agreements in force with Italy4.not have been resident for tax purposes in Italy in the 5 years prior to the transferDurationup to 6 yearsElectiontax returnRevocation from thetaxpayerYES Income tax7% annual flat tax rate on the foreign-sourced income (not limited to pension income) Italian-sourced income and any foreign-sourced income that has been excluded on a cherry-picking basis shall betaxed pursuant to the ordinary IRPEF progressive tax rates (from 23% to 43%, plus surcharges)Family membersNOIVAFE/IVIEexemptionInheritance and Gift taxes NO exemptionReporting obligations onexemptionforeign assets26

Italy: The highly qualified workers regimeConditionsthe individuals should:1.transfer tax residence in Italy2.not have been resident in Italy in the 2 tax years prior to the transfer3.commit to be resident in Italy for at least 2 years4.carry out their work activity mainly in ItalyDuration5 years (up to 10 years at specific conditions)Electionwritten request to the employer/Tax returnRevocation from thetaxpayerNOIncome Tax70% income exemption (that may be extended to 90% in certain cases) for five years.50% income exemption (that may be extended to 90%) for additional five years in certain casesFamily membersNOIVAFE/IVIENO exemptionInheritance and GifttaxesNO exemptionReporting obligationsNO exemptionon foreign assets27

Filing and withholding obligations for U.S.retirees abroad who maintain U.S. citizenship- U.S. citizens and green card holders will generally be liable for U.S.Federal income tax for as long as they are physically alive.- U.S. citizens and green card holders will generally not pay tax twiceon the same income. This is achieved by utilizing Foreign Tax Credits(FTCs); the Internal Revenue Code (IRC) Section 911 exclusion;and/or a combination of both FTCs and the IRC Section 911exclusion.- It is important to consider the State from which the individualdeparted when moving abroad in order to determine if a State filingobligation might still exist while the individual is abroad. It isimportant to understand if the State the individual is departing fromis a residency State or a domiciliary State.- Now let’s consider the filing obligations in jurisdictions that offerincentives to foreign retirees28

Belize: Filing and withholding considerationsfor U.S. citizen retirees Tax Year is the calendar year. Belize income tax returns are due on March 31 unless an extension isapproved by the Commissioner of Income Tax. Persons earning more than 26,000 are charged a flat rate of 25%. Persons employed and residing in Belize whose total income from allsources is less than 26,000 are exempt from Income Tax in Belize. Certain citations indicate that pension income is exempt from tax inBelize and that there is currently no capital gains tax in Belize. Callsto the Belize Income Tax Department to confirm these statementswere not returned. There is no Income Tax Treaty between Belize and the United States.29

Portugal: Filing and withholding considerationsfor U.S. citizen retirees Tax Year is the calendar year. Portuguese income tax returns must be filed between April 1 and May 31.Final payment of tax due or refund of tax paid is payable or refundable whenthe Portuguese tax authorities issue the tax assessment. An optionalextension until December 31 is available if the taxpayer is requesting toclaim FTCs. Generally there is withholding at source on all types of income, interest anddividends at 28%. Pensions and employment income at progressive ratesaccording to levels of income. Income tax rates are progressive up to 48% (14.5%, 23%, 28.5%, 35%, 37%,45%, 48%). Additional surcharge of 2.5% applies to income between 80,000EUR and 250,000 EUR. Additional 5% surcharge for income over 250,000EUR. There is an Income Tax Treaty between Portugal and the United States.Paragraphs 1(b) and 4 of Article 20 (Pensions, Annuities, Alimony, and ChildSupport) are excepted from the saving clause by virtue of paragraph 1(b) ofthe Protocol. Thus, the U.S. will allow U.S. citizens and residents the benefitsof paragraphs 1(b) and 4 of Article 20.30

Italy: Filing and withholding considerations forU.S. citizen retirees Tax Year is the calendar year. Italian income tax returns must be filed by October 31. Income tax must bepaid by June 30 for income earned in the preceding calendar year. Italian tax residents must report their foreign investments held outside Italyby filing the foreign investment return (RW Form). Penalties of 3% - 15%apply to omitted or incorrect filing of the RW Form and the penalties can bedoubled depending on the country where the investment is held. Income tax rates are progressive up to 43% (23%, 27%, 38%, 41%, 43%).Additional regional ordinary tax rates from 0.7% to 3.33% on taxable incomeas calculated for Italian income tax purposes. Additional municipal tax atrates up to 0.9% on taxable income as calculated for Italian income taxpurposes. There is an Income Tax Treaty between Italy and the United States.Paragraphs 5 and 6 of Article 18 (Pensions, Etc.) are excepted from thesaving clause by virtue of paragraph 3(a) of Article 1. Thus the U.S. will allowU.S. citizens and residents the benefits of paragraphs 5 and 6 of Article 18.31

United Kingdom: Filing and withholdingconsiderations for U.S. citizen retirees Tax Year is a fiscal year April 6 to the following April 5. For example the2019/2020 UK tax year runs from April 6, 2019 through April 5, 2020. UK income tax returns must be filed by October 31 if opting to file ahardcopy or by January 31 if filing online. Tax on employment income iswithheld by the employer under the Pay As You Earn (PAYE) system and isremitted to the tax authorities. Tax on income not subject to PAYE andcapital gains income is self-assessed. Self-assessed payments are due onJanuary 31 and July 31. Income tax rates are progressive up to 45% (20% basic rate, 40% higher rate,45% additional rate). There is an Income Tax Treaty between the United Kingdom and the UnitedStates. Subparagraph 1(b) and Paragraphs 3 and 5 of Article 17 (Pensions,Social Security, Annuities, Alimony, and Child Support) are excepted from thesaving clause by virtue of paragraph 5 of Article 1. Thus, the U.S. will allowU.S. citizens and residents the benefits of subparagraph 1(b) and paragraphs3 and 5 of Article 17.32

Switzerland: Filing and withholdingconsiderations for U.S. citizen retirees Tax Year is the calendar year. Switzerland has a complex tax structure based on the country’s three levels of government –Federal, Cantonal and Municipal. Swiss Federal law is uniform throughout Switzerland howevereach of the 26 cantons have separate laws for cantonal taxes. Municipal taxes are levied as amultiple of the cantonal taxes. The choice of residence is important since the taxes vary in ratesby canton and municipalities. Swiss Federal income tax returns must be filed by March 31. An extension may be requested,and is usually granted, until September or November. Resident individuals who are not subject towage withholding will pay their taxes through the filing of the Federal income tax return. Thepayment due date after having received a final assessment and bill from the tax authorities isusually 30 days. The due date for filing Swiss Cantonal returns varies by Canton. Cantonal and municipal taxes areusually collected on a provisional basis throughout the respective tax year. Swiss Federal income tax rates are progressive up to 11.5%. The average tax rate includingFederal, Cantonal, and Municipal taxes varies between approximately 22% and 45%. A net wealth/net worth tax is assessed at the Cantonal and Municipal levels but there is no SwissFederal net wealth/net worth tax. There is an Income Tax Treaty between Switzerland and the United States. The provisions ofArticle 18 (Pensions and Annuities) are subject to the saving clause of paragraph 2 of Article 1Personal Scope). As a result a U.S. citizen who is a resident of Switzerland and receives a pensionor annuity from the U.S. may be subject to U.S. tax on the payment, notwithstanding the rules inArticle 18 that give the State of residence of the recipient the exclusive taxing right.33

Americans incur worldwide taxation Unless they expatriate How? Become an Nonresident alien (NRA). The taxation of tax expatriates is complex. 2008 legislation’s “exit tax” expatriation regimereplaced the prior 10-year regime. Reporting, withholding & compliance issues. Planning opportunities limited. Reed Amendment to immigration laws.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands35

Expatriation to terminate citizenship orgreen card residency status Expatriation regime applies to expatriatingcitizens and long-term resident aliens (“LT RAs”). LT RAs are green cardholders in 8 out of 15 prior years. Exit tax: Deemed FMV sale of expatriate’sassets. IRC § 877A. Covered expatriate’s gifts and bequests taxed toU.S. recipient. IRC § 2801.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands36

Expatriating Citizens & LT RAs Exit tax on expatriating citizens and LT RAs. Date of loss of U.S. citizenship: Date of renunciation of U.S. nationality before U.S.diplomatic or consular officer; Date statement of voluntary relinquishment of U.S.nationality furnished to State Dept. Date of State Dept. issues certificate of loss of nationality;or Date U.S. Court cancels a naturalized citizen’s certificateof nationalization.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands37

Expatriation: LT RAs Cessation of Lawful Permanent Residency: Revocation of lawful permanent residency status, oradministrative or judicial determination ofabandonment of status; or Individual commences foreign country tax treatyresidency and does not waive treaty benefits,and notifies IRS of such treatment (Forms 8833and 8854).New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands38

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? Overview The Foreign Investors Tax Act of 1966(“FITA”) Health Insurance Portability andAccountability Act of 1996 (“HIPPA”) American Jobs Creation Act of 2004(“AJCA”) Heroes Earnings Assistance and ReliefTax Act of 2008 (“HEART”)TAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 3939

FLOTT & CO. PC - ATTORNEYSHeroes Earnings Assistance andRelief Tax Act of 2008 (“HEART”) Created the regime and reportingrequirements that now govern those whoexpatriate after June 16, 2008 Added section 877A to the Code,replacing the 10 year regime of section877 with a “mark-to-market” regime,what is commonly called the “exit tax”TAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4040

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? HEART (continued) Eliminated requirement to report to boththe IRS and the State Department Set “date of relinquishment” of UScitizenship & revises section 6039G torequire expatriates to file Form 8854 Applies to individuals who expatriate onor after June 17, 2008; section 877 ceasedto apply after June 16, 2018TAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4141

FLOTT & CO. PC - ATTORNEYSHeroes Earnings Assistance andRelief Tax Act of 2008 (“HEART”) Everyone who renounced US citizenshipafter June 16, 2008 is subject to HEART Only those who relinquished UScitizenship prior to that date are subjectto the provisions of one of the earlierstatutes depending upon the date onwhich they relinquished US citizenshipTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4242

FLOTT & CO. PC - ATTORNEYSHeroes Earnings Assistance andRelief Tax Act of 2008 (“HEART”) A person relinquishes US citizenship if heor she becomes a naturalized citizen ofanother country and intends by doing soto give up his or her US citizenship The date of that person’s naturalizationin the other country is the date of theirexpatriation from the United StatesTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4343

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? Anyone who fails to file Form 8854 tocertify compliance with his/her US taxobligations for the five years precedingthe year of expatriation Form 8854 must be filed by the due dateof the expatriate’s federal income taxreturn for the tax year of expatriationTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4444

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? If a US citizen expatriates in 2019, thatperson must file Form 8854 with his/herForm 1040 by June or October 2020 The Form 8854 must certify that theperson has filed US tax returns for atleast five tax years prior to 2019, i.e., for2018, 2017, 2016, 2015 and 2014,assuming the person was required to filea US tax return in all of those yearsTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4545

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? Anyone who meets either of these tests: Average annual net income taxliability for the five years prior to theyear of expatriation (2018) exceeds: 155,000 for 2013 157,000 for 2014 160,000 for 2015 161,000 for 2016 162,000 for 2017 Net worth exceeds 2 million on thedate of expatriationTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4646

FLOTT & CO. PC - ATTORNEYSWho is not a Covered Expatriate? Anyone who became at birth a citizen ofthe United States and a citizen of anothercountry and, as of the expatriation date,continues to be a citizen of, and is taxedas a resident of, such other country and has been a resident of the United Statesfor not more than 10 taxable yearsduring the 15 taxable year period priorto expatriationTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4747

FLOTT & CO. PC - ATTORNEYSWho is not a Covered Expatriate? Anyone who expatriates before he or sheturns 18½ and has been a resident of the United Statesfor not more than 10 taxable years priorto expatriationTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4848

FLOTT & CO. PC - ATTORNEYSWho is a Covered Expatriate? The dual national exemption DOESNOT apply to anyone who fails to fileForm 8854 certifying compliance withUS tax requirements for the five yearspreceding expatriationTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 4949

FLOTT & CO. PC - ATTORNEYSWho is a “dual national” at birth? Anyone who was born in the UnitedStates is a citizen of the United States byvirtue of the 14th Amendment to the USConstitution (even if the person leavesthe US the next day!) Anyone who was born abroad to a UScitizen and has their birth registered at aUS consulate overseasTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 5050

FLOTT & CO. PC - ATTORNEYSWho is a “dual national” at birth? Anyone born in the United States who isentitled by the law of the country ofhis/her parents’ citizenship to citizenshipof that or those countries (jus sanguinis)is a “dual citizen at birth” and is not acovered expatriate for purposes of the taxand asset tests These individuals are not required tonaturalize to obtain citizenship in theirparents’ countries of citizenshipTAX PLANNING ISSUES FOR U.S. EXPATRIATION 2018 - 5151

Expatriation: Exit TaxMark-to Market Tax. Deemed FMV sale of all worldwide assets on day beforeexpatriation. Taxable assets Property includible in gross estate if expat hadinstead died. Including deemed ownership of beneficial interests in trusts (perNotice 97-19). FMV for estate tax purposes, with exceptions. Separate rules: Deferred comp, certain tax deferredaccounts and trust interests.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands52

Calculating the exit tax Taxed on net gain 725,000 (2019). Exemption allocated among gain assets. Basis increase for gain (FMV basis). Calculate tax on landed FMV basis. Property-by-property irrevocable election to applythis rule. Election to defer tax with interest. Election on property-by-property basis.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands53

Special rules: Deferred comp and taxdeferred accounts Eligible or ineligible deferred compensationitem? 30% withholding on eligible deferred compensation. Specified tax-deferred accounts accelerated &taxed.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands54

Special rules: Trust interestsExpatriation tax: Trust interests Exit tax on look-thru of grantor trusts. Non-grantor trusts: 30% withholding. Gain in distributed assets recognized & taxed. Conversion to grantor trust treated as expatdistribution.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l British Virgin Islands55

Taxing Expat's Gifts & BequestsInheritance, gift taxed to U.S. recipient atmaximum rate. Annual exclusion, qualifying spousal, andcharitable gifts/bequests excluded. But no medical/educational expense exclusions. Reduction for foreign tax on gift/bequest. Recipient domestic trust pays §2801 tax. U.S. distributee of foreign trust pays §2801 tax. Foreign trust can elect to pay §2801 tax.New York l New Haven l Greenwich l Los Angeles l Rancho Santa Fe l San Diego l San FranciscoLondon l Geneva l Milan l Padua l Hong Kong l Singapore l Tokyo l Sydney l Brit

Jul 25, 2019 · BDO USA, Stamford, Conn. tmcglynn@bdo.com Paul Sczudlo, Of Counsel Withers Bergman, Los Angeles paul.sczudlo@withersworldwide.com Carole (Jodi) Trent, Director of Expatriate Services KBF CPAs, Portland, Ore. ctrent@kbfcpa.com Alex B. Poe, CPA, Senior Manager KBF CPAs apoe@kbfcpa.com