Pre-Tax Resident EB-5 Tax Planning: Structuring Assets Before Receiving a US Green Card

Pre-Tax Resident EB-5 tax planning is a topic most Vietnamese investors only look into after they have already received their the United States permanent resident card — by which point most optimisation opportunities are already gone. Once an investor Visa EB-5 becomes a US Tax Resident, all of their worldwide assets fall under the US tax system, along with complex reporting requirements such as FBAR, FATCA and Form 5471.

The pre-immigration window — the period from I-526E approval to before becoming a US Tax Resident — is the golden opportunity for investors to restructure their assets. During this period, the investor remains a Non-Resident Alien (NRA) for tax purposes, is not required to declare worldwide income, and is not subject to US gift tax or estate tax on foreign assets. Some strategies only work if carried out within this window; once Tax Resident status begins, those opportunities are essentially closed.

This article analyses the four core strategies of pre-Tax Resident EB-5 tax planning — basis step-up, accelerating income, deferring deductible expenses, and foreign trust planning — along with important warnings and considerations for Vietnamese investors.

Why the Pre-Immigration Window Is the Golden Opportunity

According to guidance from the US Internal Revenue Service (IRS), the residency start date — the first day of becoming a US Tax Resident — is usually the first day of physical presence in the United States as a permanent resident.

Before the residency start date, the investor is a Non-Resident Alien — subject to US tax only on US-source income. Foreign assets, foreign income, and gifts or inheritances between foreign persons all fall outside the US tax system.

After the residency start date, everything changes:

• Worldwide income must be declared on Form 1040
• Foreign assets must be reported via Form 8938 and FBAR
• Shares in foreign companies (≥10%) must be reported via Form 5471
• Foreign investment funds become subject to the harsh PFIC regime
• Gifts and inheritances of foreign assets may become subject to US estate tax once domiciled

The four pre-Tax Resident EB-5 tax planning strategies below take advantage of this legal gap to optimise asset structure before falling under the US tax system. Once Tax Resident status begins, the resulting tax and reporting obligations are analysed in detail in the article on EB-5 tax obligations after the green card.

Strategy 1 — Basis Step-Up

This is the most common strategy and has the greatest financial impact for investors whose assets have appreciated significantly.

Basic Concept

When a US Tax Resident sells an asset, the IRS taxes the capital gain — the difference between the sale price and the tax basis (the original purchase price). The problem: for an investor newly become a Tax Resident, the IRS treats the basis as the asset’s original purchase price — which could be from 10-20 years ago, far below today’s price.

Illustrative example: an investor bought property in Ho Chi Minh City in 2010 for US$100,000. In 2026 they become a US Tax Resident. At that point the property has an FMV of US$1,500,000. In 2027 the property sells for US$1,500,000. The IRS treats the capital gain as US$1,400,000 (US$1.5M – US$100K) — taxed at around US$560,000 (federal plus state, ~40% for a high income bracket).

If the investor applies a basis step-up before residency: carrying out a valid transaction before residency resets the basis to the FMV of US$1,500,000. After becoming a Tax Resident, selling the property at the same US$1,500,000 price gives a capital gain of zero — no US tax is due.

Basis Step-Up Methods

Some techniques used by international tax lawyers:

Sale and repurchase abroad: sell the asset to an arm’s-length third party in Vietnam, then buy it back at market price. Requirement: the transaction must have economic substance and not be recharacterised as a sham.

Transfer to an existing or newly formed entity: transfer ownership of the asset into a company or partnership in Vietnam or a third country at FMV.

Liquidation of an existing entity: liquidate the company that owns the asset and distribute it to the individual investor at FMV. Note the Vietnamese tax obligations that arise on liquidation.

Check-the-box election: a US-specific technique that allows a foreign entity to be treated as a “disregarded entity” — creating a deemed sale for US tax purposes without an actual transaction. This must be done at the right time, before residency.

Important Warning

A basis step-up only works if:
– The transaction is tax-neutral in Vietnam (not taxed in Vietnam)
– The transaction has economic substance and is arm’s length
– An independent valuation report supports the FMV
– It is completed before the residency start date

For Vietnamese investors, sale-and-repurchase transactions must account for Vietnam’s real-estate transfer tax (2% of the transfer price) and registration fees. Sometimes the Vietnamese tax cost of a step-up is still far lower than the US capital gains tax avoided — but this must be calculated case by case.

Strategy 2 — Accelerate Income

The second strategy in pre-Tax Resident EB-5 tax planning is proactively recognising income before residency so it is taxed in Vietnam rather than after entering the US tax system.

Rationale for the Strategy

Before residency, income from Vietnamese sources is subject only to Vietnamese personal income tax (5-35% on a progressive scale) or corporate income tax (20%). After residency, the same income is also subject to US federal tax (10-37%) and state tax (0-13.3%).

The Foreign Tax Credit (FTC) allows tax already paid in Vietnam to be credited against US tax, but if the US rate is higher than Vietnam’s, the investor still has to make up the difference. In particular, some types of Vietnamese income (such as dividends from private companies or income from transferring shares) enjoy preferential Vietnamese tax rates and may not make optimal use of the FTC.

Types of Income That Can Be Accelerated

Some income can be proactively recognised before residency:
– Accumulated dividends from a Vietnamese company (declared and distributed before residency)
– Bonuses and year-end payments from a company (received before residency)
– Capital gains from selling accumulated shares or securities
– Income from contracts already signed but not yet paid (if the structure allows early collection)

Warning

Accelerating income can push the investor into a higher Vietnamese tax bracket that year. A specific calculation is needed: total Vietnamese tax on the accelerated income versus total US plus Vietnamese tax if deferred until after residency. In many cases, the strategy only pays off if the US marginal rate is significantly higher than the Vietnamese marginal rate.

Strategy 3 — Defer Deductible Expenses

The third strategy is the mirror image of Strategy 2: deferring deductible expenses until after becoming a US Tax Resident.

Rationale for the Strategy

Before residency, expenses incurred are not deductible on Form 1040 because an NRA only declares US-source income. The same expenses, if incurred after residency, can be deducted to reduce US taxable income.

Expenses That Can Be Deferred

• Planned business expenses (purchasing equipment, marketing campaigns)
• Charitable contributions to US-qualified charities (only deductible after becoming a Tax Resident)
• Mortgage interest payments (can be deferred until becoming a resident)
• State income tax payments (deducted on Schedule A of Form 1040 for the year paid)

Warning

Deferring expenses is only beneficial when the US marginal tax rate after residency is higher than the Vietnamese marginal tax rate before residency. For investors with low income in Vietnam who will have high income in the United States, this strategy has value; conversely, for investors who already have high income before residency, its value diminishes.

Strategy 4 — Foreign Trust Planning

This is the most complex strategy but also has the greatest long-term impact, particularly for investors with substantial assets to pass on to the next generation.

Basic Concept

A foreign trust established before residency can hold assets outside the reach of:

US gift tax: transferring non-US assets into the trust before the investor becomes domiciled in the United States → not subject to US gift tax (since an NRA is not liable for gift tax on foreign assets).

US estate tax: assets held in a valid foreign trust are NOT counted in the investor’s gross estate on death → not subject to US estate tax (federal estate tax of up to 40%, with an exemption of around US$13.61M for 2024, which may fall lower in 2026).

Income tax (limited): a foreign non-grantor trust has income tax advantages if it meets a number of complex conditions.

The Five-Year Rule for Income Tax Benefits

An important rule: a foreign trust established within 5 years before residency can be treated as a grantor trust for income tax purposes — meaning the trust’s income is still taxed on the investor’s Form 1040. To make full use of the income tax benefits, a foreign trust should be established more than 5 years before residency — not every EB-5 investor has that much time.

However, the gift tax and estate tax benefits are NOT bound by the five-year rule — establishing the trust before residency is enough.

Reporting and Compliance

A foreign trust brings complex reporting obligations:

• Form 3520: reporting transactions with a foreign trust and gifts from abroad exceeding US$100,000
• Form 3520-A: an annual return for a foreign trust with a US owner
• Form 8938: reporting an interest in a foreign trust as a foreign asset

Penalty for failing to file Form 3520: a minimum of US$10,000 or 35% of the transaction value, whichever is greater. The penalty is severe — a violation typically costs more than the tax savings achieved.

Specific Considerations for Vietnamese Investors

Vietnam’s legal system has NO concept of a trust in the common-law sense — there is no Vietnamese trust that can be used for this purpose. As a result, the foreign trust must be established in a third country with a dedicated trust law system (Cook Islands, Cayman Islands, Bahamas, Singapore, Hong Kong, and so on). This significantly raises setup and running costs (typically US$20,000 — US$50,000 to set up, US$5,000 — US$15,000 a year to run), and only suits investors with substantial assets (typically above US$5 million).

Special notes for Vietnamese investors

Pre-Tax Resident EB-5 tax planning has certain considerations specific to Vietnamese investors that investors from other countries do not face.

No Vietnam — United States DTA

As of 2026, Vietnam and the United States still have no formal Double Taxation Agreement (DTA). The practical consequences:

• No tie-breaker rule for dual residency
• No reduction in withholding tax on dividends, interest or royalties from the United States to Vietnam
• The Foreign Tax Credit is the main tool against double taxation, applied under each country’s domestic law
• No treaty positions are available — investors cannot claim treaty benefits

By comparison, investors from countries with a DTA (Singapore, the United Kingdom, Germany, South Korea, and so on) have additional legal tools that are not available to Vietnamese investors.

The PFIC Trap — the Foreign Fund Pitfall

Passive Foreign Investment Company (PFIC) is a harsh tax regime applied to most foreign investment funds (mutual funds, ETFs, some types of private funds). After residency, PFIC income is taxed at ordinary income rates (up to 37%) plus a cumulative “interest charge” on distributions.

For Vietnamese investors holding fund certificates with domestic fund managers (such as VinaCapital, Dragon Capital, SSI Asset Management, and so on), these investments can be classified as PFICs once in the United States. Recommendation: review the entire fund portfolio, and consider selling or restructuring before residency to avoid falling under the PFIC regime.

Vietnamese Business Ownership Structure

Investors holding shares in a Vietnamese business (LLC, JSC) must file Form 5471 after residency if they own ≥10%. Form 5471 requires detailed disclosure of finances, related-party transactions and ownership structure — far more complex than an ordinary Vietnamese personal tax return.

Some steps worth considering before residency:
– Reorganise the ownership structure (reducing the ownership stake below 10% if consistent with business goals)
– Distribute accumulated earnings and profits (E&P) before residency to avoid Subpart F income or GILTI tax after residency
– Restructure the business to step up the basis of the shares

Gifts to Family in Vietnam

Investors can gift non-US assets to children, a spouse or other relatives before becoming US domiciled without incurring US gift tax. This is an opportunity to move part of their assets beyond the reach of the US tax system before it is too late.

Note: Vietnam has a gift tax (10% on amounts from 10 million VND), far lower than US gift tax (40% on amounts above the US$13.61M lifetime exemption for 2024). For large families, gifting before residency is a simple and effective strategy.

How to Implement Pre-Tax Resident EB-5 Tax Planning

For investors considering pre-Tax Resident EB-5 tax planning, the typical process includes:

Step 1 — Find a CPA or Tax Attorney specialising in cross-border US tax: right after I-526E is approved and the immigrant visa is ready. An initial consultation is usually US$500 — US$2,000, and the total project fee can run to US$20,000 — US$80,000 depending on complexity.

Step 2 — Audit current assets: compile a complete inventory of assets in Vietnam and any third country: property, business shares, savings accounts, securities, investment funds, insurance, intellectual property, and digital assets.

Step 3 — Determine FMV: commission an independent valuation for the main assets (property, business shares). The FMV report is the legal basis for the basis step-up.

Step 4 — Consult a Vietnamese tax adviser: make sure the planned transactions do not trigger a large Vietnamese tax bill, or that the Vietnamese tax is far lower than the US tax avoided.

Step 5 — Implement before the residency start date: carry out the sale, transfer, gift or trust funding as planned. Important: all transactions must be completed BEFORE entering the United States on the immigrant visa.

Step 6 — Document everything thoroughly: keep contracts, minutes, bank transfer statements and valuation reports. The IRS may request these documents for review up to 7-10 years later.

Step 7 — Prepare the Year 1 dual-status return: the first year after residency is filed as a dual-status return, together with Form 8938, FBAR, Form 5471 (if applicable) and Form 3520 (if there is a foreign trust).

When Complex Tax Planning Is NOT Needed

Not every EB-5 investor needs to implement all four strategies above. In some cases, simple tax planning is enough:

• Assets in Vietnam under US$1 million: the cost of tax planning may exceed the benefit
• Assets mostly in cash or non-appreciated form: little potential for a basis step-up
• No Vietnamese business: no Form 5471, GILTI or Subpart F issues
• No foreign investment funds: the PFIC trap is avoided

For investors in these situations, it is enough to focus on reporting compliance (FBAR, Form 8938) and filing the dual-status return correctly. Annual compliance costs for a CPA to handle this are usually US$2,000 — US$5,000.

Summary

Pre-Tax Resident EB-5 tax planning is a time-limited legal opportunity — it can only be used before the residency start date. The four core strategies (basis step-up, accelerating income, deferring expenses, foreign trust) can save investors with substantial assets hundreds of thousands to millions of dollars in tax, but can also cause serious consequences if implemented incorrectly.

For Vietnamese investors, factors such as the lack of a DTA, the PFIC trap with domestic funds, and the complexity of Form 5471 for shares in a Vietnamese business call for a strategy tailored to each individual case — there is no one-size-fits-all solution.

PLI’s immigration specialists recommend that every EB-5 investor with substantial assets in Vietnam consult a CPA or Tax Attorney specialising in cross-border US tax as soon as I-526E is approved — not wait until close to the immigrant visa date to begin. At the same time, consult a Vietnamese tax adviser in parallel to ensure the transactions are tax-neutral on both sides. The cost of specialist tax advice is a worthwhile investment compared with the risk of mishandling a cross-border tax planning process with long-term financial consequences.