U.S. Estate Tax (Non-Resident Aliens)
A non-resident alien is subject to U.S. estate tax on their taxable estate assets situated in the U.S. (IRC §2101(a), 2106(a)).
For U.S. estate tax, both stock of a U.S. corporation (IRC §2104) and U.S. real estate (Treas Reg §20.2104-1(a)91)) are “situated” in the U.S.
Non-resident aliens are entitled to:
1. Unlimited deduction for transfers to U.S. citizen spouses (IRC §2106(a)(3)).
2. A “$60,000 unified credit”, which permits a non-resident alien to transfer only $60,000 worth of property free of estate tax.
3. Deduct a portion of expenses, indebtedness, taxes and losses from their gross estates (IRC §2106(a)(1)), deduct certain charitable contributions from their gross estates (IRC §2106(a)(2)(A)), but only if they disclose their world-wide estate in their estate tax return (IRC §2106(b)).
A person who acquires property from a non-resident alien decedent will receive a “stepped-up” basis in the property (i.e., a basis equal to the fair market value of the property at the date of the decedent’s death) regardless of whether the property was includible in the non-resident alien’s gross estate for estate tax purposes (IRC §1014(b)).
Generation Skipping Tax
Non-resident aliens are subject to the generation skipping tax but only on gifts subject to gift or estate tax (e.g., no gift tax on lifetime “skips” of intangible property).
U.S. Estate and Gift Tax Treaties
Under U.S. Federal Estate & Gift Tax Laws, an alien is taxed as a U.S. Estate & Gift Tax Resident once he establishes a U.S. domicile. An alien acquires a U.S. domicile by living in the U.S. (for even a brief period of time) with the requisite intention to indefinitely remain (Treas Reg §20.0 – 1 (b)(1) Treas Reg §25.2501 – 1(b))
An alien, who establishes a U.S. domicile, is subject to:
1. A U.S. Gift tax on the donor’s act of making the gift (transfer of asset) (IRC §2501(a))
2. A U.S. Estate tax on the transfer of their taxable estate (worldwide assets) (IRC §2001(a))
Since 1976, a unified tax rate is applied to assets transferred for both estate and gift tax (tax free gifts up to $1M, tax free estate up to $3.5M (2009), which includes gifts).
Top Tax Rate (2009): 45%
The United States has 18 estate & gift tax treaties (see below). To qualify for the treaty tax benefits, an alien must be domiciled in either the U.S. or a U.S. Treaty Country i.e., country of origin (or choice), at the time of his death or at the time of the gift.
The treaties contain special tax rules which may reduce the alien’s U.S. Federal estate and gift tax liability. The treaties are designed to prevent double taxation on the transfer of the same asset (which is the subject of the estate or gift tax).
1. Australia Estate Tax Treaty
2. Australia Gift Tax Treaty
3. Austria Estate and Gift Tax Treaty
4. Canada Estate Tax Treaty
5. Denmark Estate and Gift Tax Treaty
6. Finland Estate Tax Treaty
7. France Estate and Gift Tax Treaty
8. Germany Estate and Gift Tax Treaty
9. Greece Estate Tax Treaty
10. Ireland Estate Tax Treaty
11. Italy Estate Tax Treaty
12. Japan Estate and Gift Tax Treaty
13. Netherlands Estate Tax Treaty
14. Norway Estate and Inheritance Tax Treaty
15. South Africa Estate Tax Treaty
16. Sweden Estate, Inheritance and Gift Tax Treaty
17. Switzerland Estate and Inheritance Tax Treaty
18. United Kingdom Estate and Gift Tax Treaty
Translator
By N2H
