Did you know that millions of foreigners are liable to pay US estate taxes?
It’s true. Every foreigner that personally owns US stocks is subject to US estate tax, with some paying as much as 40%.
Can you imagine your heirs getting 40% less because you failed to plan properly?
Fortunately, it’s relatively easy to avoid US estate tax with a RAKICC entity.
US Tax Law
Non-US persons, which may include green-card holders that are not domiciled in the US, face unique obstacles in transferring their US stocks to their heirs.
This problem impacts millions of people around the world as most self-directed and managed portfolios contain US stocks (both public and private).
US law dictates that all “US property” is subject to estate tax regardless of its owner’s citizenship or residency. “US property” generally includes US stocks, certain bonds, and mutual funds (as well as so-called real property like homes, land, and other tangible assets).
The US tax code excludes only $60,000 of value from a foreigner’s estate from the estate tax. The value of stocks above this threshold are subject to very high tax rates ranging from 26% to 40%.
Here are some generic examples (though tax treaties can alter the calculations):
1) At the time of his death, George (a non-US person) owned $260,000 worth of US stocks.
$60,000 will be exempted from the estate tax. The remaining $200,000 is subject to a 34% estate tax. George’s estate owes $68,000 to the US government.
2) At the time of her death, Sara (a non-US person) owned $1.5 million worth of US stocks.
$60,000 will be exempted from the estate tax. The remaining $1.44 million will be subject to a 40% estate tax. Sara’s estate owes $576,000 to the US government.
As you can see, this heavy burden significantly reduces the post-tax return on investment.
RAKICC Entities
The Ras Al Khaimah International Corporate Center (RAKICC) is a corporate registry responsible for the registration and incorporation of companies in Ras Al Khaimah, United Arab Emirates.
Esquire Corporate Services can help you form a RAKICC company that is suited to your specific needs.
How to Avoid US Estate Taxes using a RAKICC Company
Foreigners can avoid the US estate tax by owning their US stocks through a RAKICC company.
Since RAKICC companies are incorporated in the UAE, their shares are not considered US property and are therefore not subject to US estate tax. You are free to transfer shares of your RAKICC entity as desired without triggering US estate tax liability.
Benefits of US Stocks
The New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ) are the two largest exchanges in the world in terms of market capitalization.
Here are some advantages of investing in US stocks:
- Extreme liquidity
- Not blacklisted unlike many smaller exchanges
- US is the global leader in gross domestic product (GDP)
- Owning the largest and most recognized companies on earth
- Denominated in US dollars – the world’s reserve currency
- Stable markets compared to smaller exchanges
- Involves minimal political risk
- Stable regulatory environment
These factors, and others, attract investors from around the world but many are surprised to learn that their US stocks will be subject to US estate tax.
Estate Planning
RAKICC entities are powerful estate planning tools allowing you to gift shares during your lifetime without US or UAE taxation. You can also easily place the shares inside a trust or foundation for the benefit of your family.
Why Esquire
Esquire Corporate Services can form and customize your RAKICC entity to suit your needs.
We’ve been handling international tax matters for nearly two decades. Our specialists will help you understand how to use your company and maximize its benefits.
Disclaimer: There are potential obstacles that may need to be avoided – these must be examined on a case-by-case basis. We are not investment advisors and nothing herein should be considered as investment advice.