Good article: US Expats turning in their passports

[Think Different]

From TIME Magazine, dated April 20, 2010:

http://www.time.com/time/world/article/ ... z0lkTV5dKM

[Contrarian Expatriate]

Good riddance! That's got to be the most foolish thing ever. Dual citizenship I get, but not denouncing US citizenship!

[Think Different]

I agree. I think there are plenty of loopholes to get around the oppressive US taxes. Unfortunately, most of those people renouncing are probably wealthy and they're taking that much more of the tax base and job opportunities with them. I doubt many of these people are hippies with guitars, busking on the street corners. The only argument could be that the high taxes in Europe for example at least provide something back, such as health care, good public transport, and free university. No small things, to be sure, but Europe's history has taught us that they tend to breed extremist governments, like Hitler, Franco, and Stalin.

[MrPeabody]

If you are a resident in the Netherlands for five years, you can get Dutch citizenship, but they don't allow duel citizenship, so you need to relinquish US citizenship. If someone is permanently living in a foreign country and receiving all their income outside the US, then dealing with the complex taxation rules of the US is just an unnecessary burden for them, and it may make sense for them to give up citizenshsip to a country to which they no longer have connections. Also, being subject to double taxation at a time when all governments have taken on large amounts of debt, may not be a good idea.

[ladislav]

Again, there are expats and there are expats. Some are professionals making Eu100,000 in Holland and who are applying for Dutch citizenship. Some are trying to survive on $500 a month in the Philippines. You think these are going to the US consulate in Cebu and turning in their passports? I don't think so.

[globetrotter]

One can simply renew ones passport at the local embassy or consulate. No need to ever set foot in America again. That is if one likes to maintain all legal pretenses.

If one does not then more options open up.

Imagine if one is 60 or so and never renews their passport while living in Chang Mai with a Thai wife and family and money in the local bank and in SK or Japan or Singapore.

It is a sign of the times that the USA, in the standard predictable fits of a dying empire, is scaring off its citizenry.

There is one word that anyone can use at anytime and sever all contact.

"NO".

There are also nations without diplomatic relations with the USA and without extradition treaties. If you are a small fish who is not rich then you can skate under the radar.

[Think Different]

"There are also nations without diplomatic relations with the USA and without extradition treaties."

Globetrotter, just out of curiosity, what are some of those nations? The ones I can think of are Iran, North Korea, and Cuba, none of which I'd ever consider. Am I missing some others, or can you recommend some others?

[MrPeabody]

I believe that one of the rules of extradition treaties is that a country doesn't extradite someone for something that is not a crime in their own country. In most European countries, tax evasion is not a crime.

[Winston]

That is a stupid thing to do. If they don't want to pay taxes to the US government, they can just not pay them and risk arrest next time they return to the US. That's better than giving up your US citizenship. It seems unnecessary to do that.

[globetrotter]

"There are also nations without diplomatic relations with the USA and without extradition treaties."

Globetrotter, just out of curiosity, what are some of those nations? The ones I can think of are Iran, North Korea, and Cuba, none of which I'd ever consider. Am I missing some others, or can you recommend some others?

Bhutan, Taiwan.

Iran is not what you think it is. The only problem is that the State Dept won't like your visa in your passport and may raise a stink.

Then there is the longer list on those w/o US extradition:

Afghanistan, Algeria, Andorra, Angola, Armenia, Bahrain, Bangladesh, Bosnia and Herzegovina, Brunei, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, the Central African Republic, Chad, China (People's Republic of China), the Union of the Comoros, Democratic Republic of the Congo, Côte d'Ivoire, Djibouti, Equatorial Guinea, Ethiopia, Gabon, Guinea, Guinea-Bissau, Indonesia, Jordan, Kosovo, Kuwait, Laos, Lebanon, Libya, Madagascar, the Maldives, Mali, the Marshall Islands, Mauritania, the Federated States of Micronesia, Moldova, Mongolia, Montenegro, Mozambique, Myanmar, Namibia, Nepal, Niger, Oman, Qatar, the Russian Federation, Rwanda, Samoa, São Tomé & Príncipe, Saudi Arabia, Senegal, Serbia, Somalia, Sudan, Syria, Togo, Tunisia, Uganda, United Arab Emirates, Vanuatu, Vietnam, Yemen, and Zimbabwe. *

Oh look. One can travel from China to Vietnam to Laos to Cambodia to Mongolia to Russia to Nepal to Myanmar to Bhutan to Taiwan to NK to Iran and never transit a country with a treaty with the USA.

[MrPeabody]

That is a stupid thing to do. If they don't want to pay taxes to the US government, they can just not pay them and risk arrest next time they return to the US. That's better than giving up your US citizenship. It seems unnecessary to do that.

It's a complex decision and depends on a person's particular circumstance. The one man in the article was an experienced businessman and I am sure he considered all the options and knew what he was doing. If you have lived in a foreign country for 10 years or longer and no longer have any connections with the US, why subject yourself to the risks of a complex tax code with barbaric penalties including long prison sentences? America has the largest prison population in the world, and loves putting people in prison. These men are making intelligent decisions, which would make sense if we could see all the relevant facts.

[globetrotter]

Good riddance!

A uniquely American response to someone exercising their right to live where they want to live.

[Rock]

US citizenship, although coveted by many, can end up being an expensive burden to primary citizens living abroad or those who gained it as an additional nationality (say a rich Taiwanese who went through the necessary steps to get a second passport from the US). Here are some of the obligations and special burdens that go with being a US citizen:

1. If you have signing authority on non-US financial accounts with an aggregate balance that exceeds US$10,000 at any time during the year, you must report the high balances for each account to the US Treasury in Detroit (forms available on IRS website) by June 30 of the following year. Willful failure to do so entails criminal penalties and draconian civil penalties (you can end up owing a lot more than 100% of your account balance). The DOJ is cracking down hard with some recent criminal prosecutions of overseas account holders with less that US$250K.

2. You are required to file US income taxes each year for your previous year’s worldwide income. You receive credit for taxes paid to foreign governments and an exemption of up to around US$90,000 earned at an overseas job. But all your investment income (interest, dividends, capital gains, rental income) is taxed by the US government no matter where the investment is located (US or abroad).

3. Say you are a high flyer earning US$1 mn per year in Hong Kong. Your British (or Aussie, or French, or other developed nation) colleague who sits next to you on the trading desk also earns US$1 mn per year. Now how much tax will each of you pay? I believe the HK tax rate is a flat 15%. All the Brit has to do is pay the HK government the equivalent of US$150K and he’s done. The UK does not tax worldwide income. On the other hand, the American will be accessed a tax by the US government as if he had earned it, less the US$90K exclusion domestically. I estimate the taxes on an income of US$910,000 would be around $350K +/- depending on the specifics of his personal situation. Now he will get credit for the $150,000 he pays to HK so his bill to the IRS will be US$200K or so. But the point is, his take-home pay is significantly less than other developed country expats making the same gross pay. This puts him at a competitive disadvantage. Now someone with that sort of salary will also have significant investment income which creates an additional tax burden vs. his non-American collegues.

4. To my knowledge, most countries besides the US do not tax their expat nationals on worldwide income. I’ve heard there are exceptions – North Korea, Libya, and Iran – but never confirmed it. If that’s its company, what does it suggest about US expat tax policy?

5. Even if you do renounce your US citizenship, I believe you are liable to the US for taxes on your worldwide income for an additional 10 years. The IRS and DoJ will do their best to enforce this, potentially with tax and extradition treaties. I believe Taiwan is one of the few countries which has neither type of treaty in force with the US. Moreover, if your gross taxable income surpassed a certain threshold during the most recent 3 tax years (Something like US$100K or US$150K) you are supposed to get audited and accessed some sort of exit tax before given permission to revoke your passport. I don’t know whether this is always enforced and what the specific rules are (US tax law is so confusing and ambiguous, even tax lawyers often have to guess).

6. Finally, there are now many financial institutions all over the world which will not accept US passport holders as clients, restrict them to certain products, or require them to sign forms for automatic data sharing with the IRS. The US prosecution of UBS and crackdown on bank secrecy scared many banks.

7. Conclusion: If you plan to live abroad and believe you will ever accumulate significant assets or achieve a high income, US citizenship may cost you substantially, both in money and hassle. Expats as a group have very weak lobby power in Washington because they are so dispersed and fragmented.

[ladislav]

US citizenship, although coveted by many...

Many is the word but mostly by people from f#$%d up countries such as Haiti, Cuba or Ukraine ( I am an example), and the Philippines. It is definitely better to have a US passport than some passport from Liberia or the Philippines. It may be coveted by some rich Chinese who want to possibly do business there, but many now prefer Canada to the US anyway. It is by no means coveted by EU people or Aussies or other such wiser people.

Sometimes I think being a teacher helps you avoid a lot of hassle. Traditionally, the US culture despises teachers and (sees them as losers ) and so do US women. You can make quite a bit of money in Saudi but never approaching a high flier lifestyle of the HK based wheeler dealer. But he will be the one the IRS will go after, not a pitiful what they see as a "faggot" ESL teacher who could not make it at home.

[momopi]

Hong Kong's income (salary) tax info:
http://www.lowtax.net/lowtax/html/hongk ... l#salaries

Please note that in addition to the basic (or progressive) income tax, there's also a mandatory social insurance in Hong Kong. The US government has arrangements with a number of countries to avoid "double social security insurance" tax for ex-pat workers. For more info, see here:
http://www.ssa.gov/international/agreem ... rview.html

If you make over $1 million USD/year, you'd have professionals working hard to help you find ways to save on taxes and asset protection. Unless if you're a tax professional, you should hire someone to help you with that kind of money. I have several well-off friends who did their own taxes for years and got into trouble because they simply don't understand all the tax codes.

Just because a country doesn't have extradition treaty, doesn't mean that the host country wouldn't deport you upon request:
http://www.buzzle.com/editorials/4-16-2004-53043.asp