Will Prince Harry pay US taxes or will he need a visa to live in Los Angeles?
Prince Harry and Meghan Markle have now moved on to their new arrangement, having officially stepped down from their royal working roles on April 1 - and they are starting this new era in sunny Los Angeles, Meghan's hometown.
While this is an easy decision, legally speaking, for Meghan and little Archie - both of whom are US citizens - it is a bit more complicated for Harry. The Prince's financial situation and many others may soon change dramatically - if, that is, he and his family consider moving to America for the long term.
Here, the tax and immigration hurdles Prince Harry will have to overcome if he chooses to stay.
If Harry lives here too long, he will have to pay for American taxes.
Whether or not someone is considered a U.S. resident for tax purposes depends on how many days they spend in the country. A (somewhat complicated) formula is used to calculate the number of days required: if a person spent 31 days in the United States in the current year, and a total of 183 days in the year in classes and the two preceding years, although the days of these two preceding years each count for less than a full day (each day of the preceding year counts as 1/3 of a day, and each day of the preceding year that counts for 1/6 of a day) - they are considered an inhabitant.
An easy shortcut, says Dianne Mehany, a lawyer specializing in international tax planning, is to make sure you don't spend more than 121 days a year in the United States.
But as Henry Bubel, a lawyer who works with wealthy, cross-border families, explains, there is a way to increase that number. "If he's able to show he has a closer connection to England, then he could stay longer under the US-UK tax treaty," Bubel said, believing the prince could get up to 'to about 150 days.
This argument is made a bit more complicated given Harry's well-known decision to step back from his role as a senior royal - a move that could be seen as a "decisive break with the UK," Mehany notes . Yet he and Meghan have retained a UK residence (Frogmore Cottage in Windsor) and have repeatedly expressed their desire to support the Queen and the Commonwealth.
Mehany believes that, especially in 2020, that could be the case with Harry. “Honestly, if he's less than 183 days old, I think that's most likely a solid point,” Mehany says, adding, “Someone who spent very little time in Los Angeles until 2020 - and was basically trapped here because of the way the world closed - you have a compelling argument that you are not really a resident of the United States. So, interestingly, the ongoing pandemic could help Harry's case.
But it would be difficult to use it in the future. "If you try to claim it for too many years in a row, at some point the IRS will say, 'No, you don't have a closer connection to another country, because you regularly spend 6 months a year in the United States, ”Mehany said.
It's also possible that Harry could pursue a “tie-break” position under the US-UK treaty, which would allow someone who accidentally becomes a resident (in other words, exceeds the allotted number of days). avoid income taxes in the United States. There is also a downside to claiming this: while Harry would avoid paying taxes, he would still have to file a load of paperwork and disclosures. “You still have to file a multitude of information returns, disclose your global assets, disclose your positions of trust, disclose your controlled foreign companies, disclose your foreign investments,” Mehany says. And like claiming a closer connection with another country, the IRS is less likely to allow it whenever it is claimed.
All of this, of course, still assumes he spends less than half the year in the United States - and it's unclear at this time if that is the case.
And there are taxes he could never avoid.
Harry and Meghan have made it clear that they plan to earn their own income - and if that income is made in the United States, they will have to pay taxes on it.
For example, even before the Sussexes moved to L.A., it was reported that Harry was paid for a speech in Miami. Unless it benefits a charity, this payment "would be considered personal service income and he would be liable for tax in the United States, whether he was a resident or a non-resident," Mehany says. . “Because that would be what we call American source income. "
Aside from taxes, if he wants to stay in the United States for any length of time, Harry will need a visa.
All of the tax scenarios described above assume that Harry would want to avoid being classified as a resident, either to avoid taxes or simply because he does not plan to spend more than 121 days a year in the United States. But it's unclear what he and Meghan are planning for their future, and it's entirely possible that they will hope to stay in Los Angeles for the long haul. If so, Harry will have to deal with immigration.
British citizens can stay in the United States for 90 days at a time under the United States Visa Waiver Program. Under this arrangement, "He is not allowed to work. He's not allowed to reside or that sort of thing here. And he can't extend that time, but he can leave the United States and come back later for another 90 days. period, ”says Karaahmet.
Yet this is not a long term solution. "So that might work at first, but eventually, if he's going to spend a lot of time here, he's going to end up choosing one of these visa options or even applying for permanent residence," Karaahmet explains.
In terms of visas, in addition to the above student and diplomatic options, Harry could apply for an O-1 visa, for "Individuals with extraordinary ability or achievement". Says Karaahmet, “It is quite common for individuals to request an O-1 rating if they can show that they achieve a very high level of accomplishment in their fields. Being famous alone wouldn't be enough for Harry, but maybe he could claim an extraordinary feat in philanthropy, or something like that.
He should also be able to prove that he was working in this area of expertise in the United States and would likely require an employer or organization to sponsor his application. “The downside to O-1 is that it has to be renewed periodically and that forces it to continue this relationship with this organization,” Karaahmet adds. “So that's a work visa, really. "
An organization that could work well? Harry and Meghan, a nonprofit, are planning to go for it. While details on the project are scarce so far, it could theoretically provide the Prince with the sponsorship he needs to secure the O-1.
"The organization would be such that there is a real structure around it and it has a payroll and other people and maybe a real office, a physical office," Karaahmet adds warningly. “So more than just a type of shell company. But yes, it is possible for an organization that he and his wife establish to sponsor him. "
Harry could also pursue his permanent residence.
This is where Meghan's US citizenship could really come in handy. As the spouse of a US citizen, Harry has the right to apply for permanent residence, although it will take some time. Under normal circumstances, a claimant would consider several months; given that the current pandemic has shut down U.S. consulates around the world, it would take even longer. (It's not out of the question that Harry's request could be dealt with faster than everyone else's, given his status, but there is no guarantee that would be the case.)
The upside, however, is that Harry wouldn't have to work to continue living in the United States, or worry about renewing a visa. Yet Karaahmet believes he is unlikely to pursue this option "for many reasons, not the least of which is tax."
It may be some time before the public learns about Harry and Meghan's long-term plans, but whatever plans they are currently making, they surely take these legal issues into account.
