When it comes to taxes, many people are aware that the United States taxes its citizens and green card holders on a worldwide basis. However, what may come as a surprise to many is that non-US individuals can also be heavily affected by US taxes, often without realising it. One such tax that can catch non-US persons off guard is the US Estate Tax. This blog aims to shed light on this lesser-known aspect of US taxation that can have significant implications for foreign investors.

For US citizens, there is a generous exemption amount before the US Estate Tax is applied. As of 2023, US individuals can pass on $12.92 million to their beneficiaries before this tax takes effect. However, for non-US individuals, the scenario is quite different. On certain US assets they are subject to US estate and gift taxation, and the maximum tax rate is a hefty 40%, with an exemption of merely $60,000.

Many people might assume that US Estate Tax only applies to physical properties held by non-US individuals in the US. However, the reality is far broader. Even intangible assets, such as shares of US-based companies like Apple, can fall under the scope of US situs tax. If a non-US investor passes away while holding Apple shares, the value of those shares may be subject to the US Estate Tax of 40%.

It is estimated that approximately 40% of US corporate equity is owned by foreign investors, and a significant number of them may not be aware that their assets could be subject to US Estate Tax. The potential tax burden can come as a shock to beneficiaries and heirs who may not have anticipated such a liability.

The good news is that with careful planning and the right structure, the impact of the US Estate Tax can often be mitigated for non-US investors. Seeking professional advice from experts who specialise in international tax planning is essential in this regard.

US Estate Tax can be a surprise burden for non-US individuals holding certain US assets, such as shares of US companies. Awareness and proper planning are vital to ensure that foreign investors can pass on their assets to beneficiaries without incurring exorbitant taxes. If you are a foreign investor with US assets, consider seeking professional guidance to understand your potential tax liabilities and explore strategies to mitigate the impact of the US Estate Tax.

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