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Would renouncing citizenship affect investing?

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zacb
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Would renouncing citizenship affect investing?

Post by zacb » November 10th, 2012, 1:00 pm

I have a question. What affect would renouncing your citizenship have on investing? Could I still trade otc stocks directly?
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OutWest
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Re: renouncing citizenship and investing.

Post by OutWest » November 10th, 2012, 3:13 pm

zacb wrote:I have a question. What affect would renouncing your citizenship have on investing? Could I still trade otc stocks directly?

Generally, NOT being a US citizen will expand your options- a whole range of banking, investment and market options open to you if you are NOT a US citizen. Some banks will not deal with you at all if you are a US citizen.

outwest

zacb
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Post by zacb » November 10th, 2012, 9:59 pm

Interesting. Care to elaborate?
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AmericanInMexico
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Post by AmericanInMexico » November 11th, 2012, 12:25 am

zacb wrote:Interesting. Care to elaborate?
It has to do with the fact that the United States is probably the only country which taxes any income earned outside of the United States. Therefore, if you are living and working outside of the country you are still required to file a tax form with the IRS every year, which non-American banks don't like since they don't want the IRS breathing down their necks. Therefore, in many countries it is very difficult for a US citizen to open a bank account; here in Mexico it is next to impossible. That is why I still don't have a Mexican bank account and must do all my monetary transactions whenever I make trips to the United States.

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Post by Jester » November 11th, 2012, 10:35 am

AmericanInMexico wrote:
zacb wrote:Interesting. Care to elaborate?
It has to do with the fact that the United States is probably the only country which taxes any income earned outside of the United States. Therefore, if you are living and working outside of the country you are still required to file a tax form with the IRS every year, which non-American banks don't like since they don't want the IRS breathing down their necks. Therefore, in many countries it is very difficult for a US citizen to open a bank account; here in Mexico it is next to impossible. That is why I still don't have a Mexican bank account and must do all my monetary transactions whenever I make trips to the United States.
You need to get an FM-3 visa to solve this problem, correct?

AmericanInMexico
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Post by AmericanInMexico » November 11th, 2012, 4:02 pm

Jester wrote:
AmericanInMexico wrote:
zacb wrote:Interesting. Care to elaborate?
It has to do with the fact that the United States is probably the only country which taxes any income earned outside of the United States. Therefore, if you are living and working outside of the country you are still required to file a tax form with the IRS every year, which non-American banks don't like since they don't want the IRS breathing down their necks. Therefore, in many countries it is very difficult for a US citizen to open a bank account; here in Mexico it is next to impossible. That is why I still don't have a Mexican bank account and must do all my monetary transactions whenever I make trips to the United States.
You need to get an FM-3 visa to solve this problem, correct?
Yes, which is what I am working on. Because I bought a house in Mexico, my monthly income requirements are reduced by 50%. For an FM-3, you must be earning every month at least 250 times the daily minimum wage in Mexico City. Since the daily minimum wage in Mexico City is currently 62.33 pesos a day, this makes a monthly income requirement of 15,583 pesos, or about $1,200 USD after conversion. However, since I own a house in Mexico and live in it, my income requirement is cut in half, meaning I only need 125 times the daily minimum wage every month, or 7791.25 pesos a month, about $600 USD after conversion; an amount of which I already earn about 2/3 of it passively through my VA disability. My recommendation is to get a house in Mexico no matter how cheap so that your income requirement is drastically reduced.

Rock
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Re: renouncing citizenship and investing.

Post by Rock » November 11th, 2012, 5:25 pm

zacb wrote:I have a question. What affect would renouncing your citizenship have on investing? Could I still trade otc stocks directly?
Yes with some differences!

Let's first address the US. As an off-shore foreigner, you can still open accounts with the likes of Charles Schwab which I believe offers electronic trading of OTC stocks. You can also open accounts overseas with offshore non-US brokers which allow you to trade US stocks (including some OTC), bonds, etc.

Depending on your foreign nationality and what sort of tax treaty that country has with the US, you may be subject to an automatic with holding tax on your cash dividends. Now if you file a tax return the following year and your dividends are modest, you can probably get most or all of the with held amount back as a tax refund. The good news is that unlike US citizens, you will not be taxed on your capital gains, only dividends and interest. To give you an example, a Taiwanese citizen could open a Schwab account, buy dividend producing OTC stocks, and have 30% of those dividends with held. However, if he bought 1,000 shares of company X and $50 and sold them later that year at $60, his $10,000 gain would not be subject to any with holding or US taxes. The following year, he could file an income tax return with the US IRS and if those dividends were say just a few hundred dollars and he didn't have any other US sourced income, by claiming them as his sole gross income and being under standard deductions and exemptions, he would probably get them all back as a tax refund later that year.

Now consider banks, brokers, and other financial institutions as well as investment opportunities (stocks, bonds, structured products, derivatives, currencies, etc.) located overseas. Many such institutions won't accept US persons or will do so with heavy restrictions on what you can buy and sell. Part of this is do to FATCA and the hassles it entails for them. But as a non-US person (I assume they don't reject or restrict you for being born in USA even though you are non-US or former US person but I could be wrong here) will have all kinds of investment opportunities not available to US persons. And depending on your new nationality and the location of your actual accounts and investments, you may very well not be taxed on gains, dividends, or interest.

Overall, you are generally much better off as a non-US person if you plan to invest significantly unless you plan to focus all your investment activity within US borders. Even then, you pay capital gains for stock and bond investments which you could avoid as a foreigner.

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Re: renouncing citizenship and investing.

Post by Jester » November 11th, 2012, 10:24 pm

Rock wrote:
zacb wrote:I have a question. What affect would renouncing your citizenship have on investing? Could I still trade otc stocks directly?
Yes with some differences!

Let's first address the US. As an off-shore foreigner, you can still open accounts with the likes of Charles Schwab which I believe offers electronic trading of OTC stocks. You can also open accounts overseas with offshore non-US brokers which allow you to trade US stocks (including some OTC), bonds, etc.

Depending on your foreign nationality and what sort of tax treaty that country has with the US, you may be subject to an automatic with holding tax on your cash dividends. Now if you file a tax return the following year and your dividends are modest, you can probably get most or all of the with held amount back as a tax refund. The good news is that unlike US citizens, you will not be taxed on your capital gains, only dividends and interest. To give you an example, a Taiwanese citizen could open a Schwab account, buy dividend producing OTC stocks, and have 30% of those dividends with held. However, if he bought 1,000 shares of company X and $50 and sold them later that year at $60, his $10,000 gain would not be subject to any with holding or US taxes. The following year, he could file an income tax return with the US IRS and if those dividends were say just a few hundred dollars and he didn't have any other US sourced income, by claiming them as his sole gross income and being under standard deductions and exemptions, he would probably get them all back as a tax refund later that year.

Now consider banks, brokers, and other financial institutions as well as investment opportunities (stocks, bonds, structured products, derivatives, currencies, etc.) located overseas. Many such institutions won't accept US persons or will do so with heavy restrictions on what you can buy and sell. Part of this is do to FATCA and the hassles it entails for them. But as a non-US person (I assume they don't reject or restrict you for being born in USA even though you are non-US or former US person but I could be wrong here) will have all kinds of investment opportunities not available to US persons. And depending on your new nationality and the location of your actual accounts and investments, you may very well not be taxed on gains, dividends, or interest.

Overall, you are generally much better off as a non-US person if you plan to invest significantly unless you plan to focus all your investment activity within US borders. Even then, you pay capital gains for stock and bond investments which you could avoid as a foreigner.
Rock, thank you for posting this.

This is info that is hard to get anywhere without paying $500++ to a knowledgeable lawyer or CPA. I offered $100 to one of the expat CPA types for similar info and he suggested that wouldn't be enough.

Nowhere, anywhere, in the tax code available on the web, does it say that you can get back the 30% withholding tax based on filing a tax return. This holds true for many countries, which charge a withholding tax to non-residents, which is usually considered "final".

I can look at a corporate tax form, but it does not have a place to say how much you already paid through withholding and now you want it back.

OK, end of rant.

**********

Good to know a "non-US person" can get back 30% withheld on "portfolio" income by filing 1040-NR. Excellent, and that helps the OP.

Now. What about "personal services" income? Let's say you are in India doing business copywriting, or you are in Taiwan working as a webmaster for U.S. clients. The clients or their bank are going to withhold the 30% and send it to Uncle Sam. Can you get that back by filing a US tax return, showing your regular P&L business expenses?

Or is the withholding "final"?

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eurobrat
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Post by eurobrat » November 12th, 2012, 12:23 am

You guys get up to $90,000 foreign tax exclusion which is more than enough for me. Catch 22 is you need to be outside of the USA for 13 months.

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Post by Tsar » November 12th, 2012, 1:29 am

What about dual citizenship? Couldn't a person open an account by failing to disclose US citizenship by presenting a non-US passport?

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eurobrat
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Post by eurobrat » November 12th, 2012, 1:34 am

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