Question about risks of dual citizenship

[Dragonsmlb]

Hi All,

I'm hoping you can help me figure out what I should do with my situation.

I'm a chinese citizen married to a US citizen, and I have my permanent green card. I now qualify for US citizenship, and would like to be able to get it, but I'm concerned about three things.

1) Will I be able to visit my family in China after I become a US citizen?

2) Will I be able to inherit family assets and a family business in 20-30 years?

3) Will I still be able to own the buildings and company stock that I already own? (a minority share in the business)

I've been reading that China will revoke my citizenship if I become a US citizen. But how will they know about it? The US doesn't send them any information, right?

Can I just return to China with my Chinese passport every time, and not mention the US citizenship? Will that work - can I use my chinese passport at the airport in USA, at the airport entering Beijing, at the airport exiting Beijing, and then my US passport entering the USA?

Do people who become US citizens get turned down for visas to China?

Do you know of any reputable western law firms that do work with chinese immigration / corporate ownership, that I can consult with?

Thanks!

[yonglin]

The US does not send the Chinese any information. However, you could certainly not renew your Chinese passport in the US without revealing your immigration status. As for renewing the passport in China as a non-resident, I don't know. The Chinese embassy will give you a visa in your US passport to visit China, but you need to turn in your Chinese passport before they do so. As for (2) and (3), I'll leave that to the better informed.

The air carriers/customs officials will check that you have immigration clearance for your destination already in Beijing, i.e., they will not let you on to a plane to the US with a Chinese passport without a US visa. My impression is that if you actually want to do this, you would have to travel over a third country.

[gato]

Right. Your problem would be leaving China with a Chinese passport with no visa.

[jbradfor]

Note that the first time you get a visa for China in your USA passport, you'll need to provide your old Chinese passport as well. So you'll need to hold on to that.

[Jive Turkey]

Regarding whether you would get caught by PRC immigration if you acquire a second citizenship, I would say that it is a matter of when rather than if. Even if you plan elaborate travel itineraries to avoid getting caught by simple cross checks of passenger list details and the documents you actually use to enter and exit, you will eventually get busted by somebody checking for visas and stamps from any countries to which you may have traveled. They occasionally check this at points of entry, and definitely check it every time a renewal application is filed either abroad or in the PRC. I think even someone with enough money to travel circuitously and a knowledge of when and how entry and exit details are checked would still eventually slip up. The only PRC citizens who don't have to worry about this are those from Hong Kong and Macau, but from your post it sounds like you are originally from the mainland. I think that if you do renounce PRC citizenship, getting a visa to visit won't be too big of a problem. I know people who have done so in the past and don't recall complaints about visas.

I cannot answer questions 2 and 3, but I think you need to consider a fourth and fifth question (assuming you haven't already done so):

4. What US tax implications are there for me if I DO NOT become a US citizen?

There are numerous implications, but two important ones immediately come to mind:

First, if you eventually move abroad, you may be required to liquidate your US property holdings, including retirement accounts, and then pay taxes on capital gains. This is essentially an exit tax to prevent foreigners from cashing out of the US without paying taxes on capital gains.

Second, if your husband dies and his estate is large enough (currently over US$4 million), you will not be given the unlimited marital exemption to US Estate Tax. There are ways to work around this, but they are a bit of a pain and are somewhat costly. If you and your spouse are well off enough for this to be an issue, then maybe you won't consider it to be such a big deal.

5. What US tax implications are there for me if I DO become a US citizen?

Again, there are two that immediately come to mind:

First, your worldwide income will be taxable, regardless of whether you are residing in the US or abroad. I am not sure how any PRC-sourced income/gains are taxed while you are a greencard holder, but I am certain that as a citizen, you will be expected to report the numbers yearly and pay tax on income.

Second, any PRC-situated assets that you own at death will be considered by the IRS as part of your estate; passage of them to anyone other than your spouse may be a taxable event.

Conclusion: You would do well for yourself and your spouse if you also consult a US tax accountant and estate planner who is familiar with issues faced by dual-citizen couples and/or persons who hold foreign-situated assets.

[jbradfor]

if your husband dies and his estate is large enough

You're assuming the Chinese person is female and the US citizen is male. I don't think the OP said this.

[Dragonsmlb]

Thanks for the feedback everybody!

I've heard "through the grapevine," and read on a few message boards, that the Chinese embassy would discriminate against a formerly mainland chinese citizen who has renounced their citizenship. You're saying you know people who have done this and they were able to get visas to visit China without any problems?

Jive Turkey,

On your point #4, what you're saying is that if I ever decide to leave the US, I won't be able to transfer retirement and brokerage assets from account to account? I would instead be legally forced to sell all of the assets, and then moved the taxed cash proceeds via wire to a new account? This sounds extreme! Do you know what the tax code ID is on this, so I can read about this? Thanks!

The estate tax issue in point 4 is also interesting to me. We are not yet wealthy to that degree in the US, but we expect to make it there through promising careers. What percentage of the exemption would I qualify for if I am still a green card holding mainland chinese citizen, at the time of my partner's death? Would the workarounds be an issue solved by a certain type of trust, or is it more complicated than that?

Point 5 - do you believe the IRS would have some way to recognize the fact that a new citizen has filed their taxes, and then audit them to try to find foreign income? Otherwise, how would they know about it? I don't generate much income at the moment, everything is kept inside the company and reinvested... but I would want to know how this works before we get hit with some big capital gains taxes, etc.

Thank you so much everyone, for all of your feedback. This is a confusing issue with lots of moving parts, and it helps to have outsiders provide some other perspectives to think about as I consider what I should do.

[gato]

I've heard "through the grapevine," and read on a few message boards, that the Chinese embassy would discriminate against a formerly mainland chinese citizen who has renounced their citizenship. You're saying you know people who have done this and they were able to get visas to visit China without any problems?

Do you have a link to those posts? There are millions of people in that situation. I've never heard of any former Chinese citizens, besides political dissidents, being turned down for a visa.

[fanglu]

I've heard "through the grapevine," and read on a few message boards, that the Chinese embassy would discriminate against a formerly mainland chinese citizen who has renounced their citizenship.

This is entirely untrue, in fact they are treated better (given longer duration visas) than people who were never Chinese citizens.

[imron]

They do however often have to jump through hoops if they no longer have a copy of their Chinese passport.

[felipe]

Why not keep your Chinese citizenship and continue as a green-card holder in the US? Your current status gives you mobility: You can live in either country without giving up anything. A US green-card holder has pretty much all the benefits of citizens (except voting, of course), and you can come and go to China as you want. And as a Chinese citizen you enjoy benefits that foreigners do not -- For example, if you ever want to move to China you can fully own a company, while foreigners cannot easily start a company without a 50% Chinese partnership. Also, as long as you are married to an US citizen, it is not a problem to renew your green-card, or to apply for US citizenship in the future. You just need to be careful about possibly losing your green-card if you stay abroad for too long, but you can get it again if you are married.

An alternative would be to give-up the Chinese citizenship, and then get the equivalent of the Chinese green-card later: Apparently there is a new law that allows foreigners with property in China to apply for long-term residency in China, and since your family has properties, that alternative could be an option. I am not sure about that (I'm not a Chinese citizen) but you may want to check it out.

[imron]

while foreigners cannot easily start a company without a 50% Chinese partnership

This is not true. It is relatively simple to set up a Wholly Foreign Owned Enterprise WFOE, and depending on the business type, all you need is a minimum of RMB 100,000 registered capital.

It might not be as simple as in other countries (for example here in Australia I can register a business online for about AUD$500, and be ready to go in 24 hours), but in China it's just a matter of going to the correct government agencies and getting the correct stamps on the correct forms, which is a lot of running around, but it's more tedious than difficult.

[gato]

Why not keep your Chinese citizenship and continue as a green-card holder in the US?

That's a good way to go, too. US green-card holders who want to live in China long-term have to worry about the residency requirement for keeping a green card, but as someone who lives in the US, you don't have to worry about. Getting US citizenship might make it easier for you to travel abroad, but other than that, a green card is probably just as good.

[Jive Turkey]

You're assuming the Chinese person is female and the US citizen is male. I don't think the OP said this.

How embarrassing. I thought I read "husband" in there somewhere but instead quite clearly just filled in irrelevant details on my own.

On your point #4, what you're saying is that if I ever decide to leave the US, I won't be able to transfer retirement and brokerage assets from account to account? I would instead be legally forced to sell all of the assets, and then moved the taxed cash proceeds via wire to a new account? This sounds extreme! Do you know what the tax code ID is on this, so I can read about this? Thanks!

You will want to read about the HEART Act. I am cerain that I have oversimplified how it might affect you, but if you do leave the US and allow your green card to lapse (this is easier than some people assume), no tax treaty will allow you to avoid being taxed at 30%. The rationale for this is that since you enjoyed the overall economic environment the US provides when earning that money, you owe the the US Government the same as everybody else. If you had stayed in the US until retirement, your distributions on certain retirement accounts would have been taxed as regular income, so in the event of a citizen expatriating or a green card holder leaving, the IRS figures that it better go ahead and take its share before they lose the chance.

The estate tax issue in point 4 is also interesting to me. We are not yet wealthy to that degree in the US, but we expect to make it there through promising careers. What percentage of the exemption would I qualify for if I am still a green card holding mainland chinese citizen, at the time of my partner's death? Would the workarounds be an issue solved by a certain type of trust, or is it more complicated than that?

At present, everybody's estate gets a US$4 million exemption. Bush raised this during his period in office from the original amount of US$1 million, and to everyone's surprise, Obama has allowed it to become a long-term thing. That doesn't mean it won't change between now and when I, or your spouse, kick the bucket. Any amount above that basic exclusion will be taxed up to something like 55% once the amount gets into the high six figures, again with the same rationale that if the IRS doesn't take their cut when they can, then they may lose the chance forever since the non-citizen can leave with all the loot. You can establish what is called a Qualified Domestic Trust. There is a bit of risk in the administration of these and so they generally must be managed by a bank's trust department. They will charge "appropriately" (read: a lot, as in something like 1% p.a.) for the risk, but even worse, may limit the selection of holdings within the trust to products with relatively high expense ratios. I recall that from the date of the citizen spouse's death, the non-citizen has something like 9 months to either become a citizen or put the whole estate in a Qualified Domestic Trust.

Point 5 - do you believe the IRS would have some way to recognize the fact that a new citizen has filed their taxes, and then audit them to try to find foreign income? Otherwise, how would they know about it? I don't generate much income at the moment, everything is kept inside the company and reinvested... but I would want to know how this works before we get hit with some big capital gains taxes, etc.

I have no idea how much information the IRS could get out of Chinese financial institutions, but they are getting increasingly effective at forcing non-US banks to devulge US clients' details. As for how to stay right by the law on this, you are going to have to sit down with a CPA, or better, a tax lawyer to figure it all out. Make sure you are talking to somebody who has handled the issues faced by people such as yourself. Expatriates and non-citizens are a special case, and not every CPA or tax lawyer will have the relevant experience to handle the work efficiently and reliably.

I appreciate that you are probably trying to find out as much about this as you can before paying a professional. To that end, I would recommend looking at some of the threads on www.bogleheads.org. It is a DIY investment forum and there are a number of knowledgeable posters there who have written about issues that might be relevant to you. Best of luck to you.