Author’s note: This composite case is purely hypothetical in nature and is not intended to resemble any actual persons’ individual circumstances.

Love in the air. The perfect Valentine romance! They met on a flight to Australia. Lots of conversation, laughs, follow-up connections on social media, phone calls, and family relatives’ comparisons (they thought they might even be very distant cousins)! The long-distance courtship solidified.

Coincidentally, they realise they don’t live so far away from each other, just a hop-skip-and jump across the water. Now, he is leaving Bermuda to be with her — in her homeland where he will reside and acquire a new citizenship. The perfect lady, the land of opportunity, gold in the streets, and stars in a bluer sky. The United States!

Crossing borders, changing lives. This is the power of today’s instant mobility connections. Our prospective groom could just as easily be moving to the United Kingdom, Europe, Canada, or any number of countries with tax regimes replete with confusion, complexity, and unexpected financial consequences. He has never lived abroad for any length of time except as a student years ago.

Reality sets in. He now must plan for what will happen to his new financial life as he now knows it in Bermuda: those bank/investment accounts, pensions, the inheritance he thinks he might get from granny, his job and business, that UK endowment account he wishes he hadn’t bought years ago, the Bermuda will that he still has not got around to changing, and who knows what else.

The announcement is out. Everyone knows. Now that unsolicited advice is forthcoming, ranging the gamut:

“You leaving de Rock? You don’t have to declare anything you have here. You earned it before you met this lady.”

“My cousin has a rental condo in the US. He says he doesn’t have to file a US tax return because he is Bermudian. You could do the same with your Bermuda condo.”

“Just put all your accounts and assets in a trust or a Bermuda company. That will protect you from all US taxation.”

“What you can do is let your brother (cousin/uncle/aunt/granny) get all the distributions from your accounts (or granny’s trust). Then, he/she can give the money back to you. Voilà, since they are Bermudian, you won’t owe any US tax.”

“Well, now that you moving out, no more Bermuda alimony payments (he divorced a few years ago).”

Well-intended, sincerely meant advice, but unless your relatives and friends are internationally experienced US qualified CPAs or attorneys in international taxation, this off-the-cuff advice is at a minimum inaccurate, and could be downright dangerously wrong.

Why is this advice so unwelcome? It is simply because Bermuda does not have, and never had, a universal income tax, significant estate tax, or gift tax regime. Cross-border tax and immigration planning is a complex unknown to a Bermudian resident individual when encountering the thousands of US immigration, legal, tax regulations and investment laws. It cannot be sorted out on an off-the cuff basis.

The US offers a route to US citizenship to millions of immigrants every year. However, receiving this gift of citizenship in what is often called the greatest country on earth comes with many responsibilities, among them, obeying all US laws on taxation, immigration, among many, all embodied in the US Constitution.

Tax laws that stipulated that you will be a good citizen, in good conscience, file your US income tax returns, (pay income tax liability, if required) on your worldwide assets and report your foreign bank accounts, foreign financial interests and foreign financial assets. Non-compliance with US tax law can be construed very seriously indeed by the US Internal Revenue Service and immigration authorities.

Let’s look at a few considered ordinary transactions with no tax consequences in Bermuda for a Bermudian individual or a couple (who are not defined as US citizens or US residents):

• Buying, selling, or renting an investment property.

• Investing, purchasing or selling stocks, bonds, currency, ETFs, mutual funds, and related.

• Receiving dividends or interest on investments and savings.

• Purchasing a home and later selling it for a decent profit.

• Contributing employee / employer contributions into a pension plan.

• Taking an annuity at retirement.

• Employed in the Bermuda economy.

• Making gifts of assets.

• Settling a Bermuda estate.

• Transferring assets into a trust.

• Settling, guaranteeing, acting as a protector, receiving distributions from a trust.

• Purchasing life insurance.

• Owning a company.

• Becoming a partner in a partnership,

• And others.

All these Bermuda transactions (and more) may (or will) generate US tax consequences when viewed through the eyes of US Internal Revenue Service if the Bermuda resident becomes a US person.*

Why is this so? The residency concept is the defining factor in international tax planning because under US law, if you are a US citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to US income tax, regardless of where you reside, and even after you die ­— possibly taxable in your US federal and state estate.

This soon-to-be groom has an immediate challenge — to settle his Bermuda affairs in a tax-efficient tax-compliant manner. Once united with his new lady, he will be sponsored for a US green card.

He also needs to learn as much as he can about his new country rules and regulations, particularly the US tax system. It cannot be emphasised enough that he starts his new life on the right foot financially, given that he will now have allegiances to two countries, along with those multiple jurisdiction financial interests.

Next week, part 2. Pre-immigration planning becomes a prerequisite in order for the soon-to-be former Bermuda resident owning assets in a non-income tax regime, to plan for tax efficiency within the window that remains open as a non-resident alien (foreign national) not a US citizen or resident.

Caution — once that window closes, You are considered a US person for taxation purposes with all of your worldwide assets subject to US taxation and reporting.

Sources: US-Bermuda Model 2 Intergovernmental Agreement, US Tax Law at Internal Revenue Service, Hodgen Law, Legal Institute @ Cornell University, US International Estate Planning, Marnin J Michaels, (c) 2014 Thomson Reuters Tax and Accounting, Find Law.

Martha Harris Myron CPA PFS JSM, Masters of Law — International Tax and Financial Services. Principal: The Pondstraddler* Life™ Consultancy, Bermuda providing cross-border financial planning for Bermuda residents with international connections.

Appointed to the Professional Tax Advisory Council, American Citizens Abroad — The Voice of Americans Overseas: https://americansabroad.org/. Contact: martha@pondstraddler.com