An Investment Structuring of U.S. Real Properties by Korean Families and Cross-border Tax Implications
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What would be the ideal solution if our Korean tax resident, Ms. Kim, is considering buying a condominium in New Jersey for her use and to possibly rent it out? She may or may not buy it in her name. She would prefer ways to allow her family to use the house without paying rent because some of them are United States (“U.S.”) residents. She does not want to be subject to U.S. gift tax, not even an estate tax-proof structure should she die. She does not know how to file a U.S. tax return on her own; not to mention, she has a preference for minimizing U.S. capital gains tax when she sells the condominium. Is there any cross-border advisor who might be able to assist with all her needs, including U.S./Korean income, estate/inheritance, and gift tax considerations related to the acquisition of this condominium with a view of Manhattan? The problem of determining tax consequences based on the underlying legal situation is aggravated in this cross-border context because Korean tax consequences often must be determined based on U.S. legal concepts and the limitation on treaty benefits. While exploring the reasons behind and implications of the different outcomes in tax administration where cross-border real estate acquisition is concerned, the author explores the relevance and application of both U.S. and Korean rules and regulations intended to optimize income and transfer taxes between the two jurisdictions. This article further considers the utility of U.S. grantor trust rules in the context of Korean individuals as non-citizen, non-domicile grantors of the trust in terms of U.S. income and estate tax purposes.
Abstract
What would be the ideal solution if our Korean tax resident, Ms. Kim, is considering buying a condominium in New Jersey for her use and to possibly rent it out? She may or may not buy it in her name. She would prefer ways to allow her family to use the house without paying rent because some of them are United States (“U.S.”) residents. She does not want to be subject to U.S. gift tax, not even an estate tax-proof structure should she die. She does not know how to file a U.S. tax return on her own; not to mention, she has a preference for minimizing U.S. capital gains tax when she sells the condominium. Is there any cross-border advisor who might be able to assist with all her needs, including U.S./Korean income, estate/inheritance, and gift tax considerations related to the acquisition of this condominium with a view of Manhattan? The problem of determining tax consequences based on the underlying legal situation is aggravated in this cross-border context because Korean tax consequences often must be determined based on U.S. legal concepts and the limitation on treaty benefits. While exploring the reasons behind and implications of the different outcomes in tax administration where cross-border real estate acquisition is concerned, the author explores the relevance and application of both U.S. and Korean rules and regulations intended to optimize income and transfer taxes between the two jurisdictions. This article further considers the utility of U.S. grantor trust rules in the context of Korean individuals as non-citizen, non-domicile grantors of the trust in terms of U.S. income and estate tax purposes.
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