Tax Planning for Cross Border High-Net-Worth Individuals - Be Informed
The Importance of Tax Planning Structure in the U.S. Tax System
Could profits earned by your overseas business be hit with an unexpected withholding tax of up to 30%?
Could selling real estate in your home country after immigrating to the U.S. trigger a cross-border tax collection by the IRS?
Could gains from cryptocurrency investments result in penalties exceeding your principal profits due to tax violations?
These are typical cross-border tax issues our clients face, revealing a large gap in many taxpayers’ understanding of the U.S. tax system. Americans often say there are two things you can’t avoid in life—death and taxes. As the top federal collection agency, even FBI agents joke: “Before we arrest someone, we need a search warrant, but a tax collector can freeze your account directly.”
In reality, all of the above problems can be legally solved. The U.S. tax code provides compliant ways to optimize tax burdens—such as using deductions, tax residency planning, and retirement account tools—so taxpayers can lawfully reduce their tax liability. However, it’s important to note that any concealment of income or fabrication of expenses constitutes tax fraud. Taxpayers who lack basic tax knowledge often misuse so-called “tax saving techniques” and end up paying an extra compliance cost of at least 20%, and in extreme cases, almost 100%—essentially “forfeiting everything.” In essence, this is like paying the Treasury a “tax on ignorance.”
This article examines personal tax planning strategies for cross-border asset allocation, outlining compliant pathways and risk-control practices to help taxpayers build a legal and effective tax management framework.
Paths to Personal Tax Optimization
① Scope of U.S. Taxation
Under U.S. law, in addition to U.S. citizens, foreign nationals with permanent resident status (green card holders) and non-green card holders who reside in the U.S. long-term are subject to special tax obligations. The U.S. imposes a global taxation regime on tax residents. For example, a green card holder is generally considered a U.S. tax resident regardless of where they actually live, and must report all worldwide income (including salary, capital gains, real estate income, etc.). A Chinese national with a green card who lives and operates a business in China must still report the business income to the IRS under U.S. tax rules.
② Scope of Chinese Taxation
China uses a combination of domicile and physical presence to determine tax residency. Under current rules, individuals with a permanent home in China, or without a permanent home but who reside there for 183 days or more in a single year (either consecutively or cumulatively), are considered Chinese tax residents and must pay individual income tax on worldwide income. Even without meeting the physical presence threshold, if a taxpayer has substantial economic ties to China (e.g., main income or assets), they may still be deemed a Chinese tax resident. This overlap of cross-border tax residency can expose taxpayers to double taxation between the U.S. and China.
How to address the risk of U.S.–China double taxation?
The most common method: claim a foreign tax credit in the U.S. (IRS Form 1116) to offset U.S. taxes with taxes already paid in China. This is based on each country’s tax rules and avoids double taxation within the legal framework. A more advanced approach is to invoke the U.S.–China tax treaty, applying for treaty residency status. Both tax authorities then determine the taxpayer’s country of tax residence based on supporting facts—fundamentally resolving the double taxation issue.
Other high-level strategies include:
Structuring irrevocable trusts
Using the Qualified Business Income (QBI) deduction for certain U.S. real estate investments
Building compliant frameworks for cross-border cost-sharing agreements (CSA)
These are professional-grade wealth planning tools forming the core of advanced tax optimization systems, and are irreplaceable for building a legal tax burden structure and ensuring the stability of a financial and tax system.
Case study – Jensen Huang (CEO and Founder of NVIDIA)
Huang executed an epic tax plan using a phased trust strategy.
2012: Transferred 584,000 company shares (now worth over $3 billion) into an irrevocable trust, removing them from his taxable estate.
2016: Transferred 3 million shares (initially worth $100 million) in stages through four Grantor Retained Annuity Trusts (GRATs). Under U.S. tax rules, a GRAT allows the grantor to set a fixed annuity return rate; if the asset appreciates beyond the IRS’s assumed interest rate, the excess can be transferred tax-free to beneficiaries.
With NVIDIA’s stock surging nearly 100-fold, the combined effect of these two steps is estimated to have avoided more than $8 billion in federal estate taxes. This showcases how ultra-wealthy individuals use irrevocable trusts for asset isolation, and leverage the timing advantage of GRATs to lock in low-valuation transfers—legally “arbitraging the rules” to pass down tens of billions to the next generation. It has become a textbook example of structural tax reduction in U.S. tax history.
Tax Tools Covering the Entire Life Cycle
From residency planning and trust structuring to cross-border credit claims and business deductions, the U.S. tax code offers a wide array of tools that—if understood and used properly—can help high-net-worth individuals navigate complex international tax obligations without paying the IRS a “tax on ignorance.”
