Why More U.S. Expatriates Are Turning In Their Passports

http://www.time.com/time/world/article/0,8599,1983238,00.html

by geoka9 • 16 years ago

44 62 16 years ago

time.com

jacquesm2• 16 years ago

Strange world where family and friends consider you a traitor for giving up your nationality.

Words like that shouldn't be used lightly.

Sukotto3• 16 years ago

A traitor is someone who committed treason. In the US, treason is defined in the Constitution http://en.wikipedia.org/wiki/Article_Three_of_the_United_Sta...

So "traitor" doesn't hold up. But since he pledged allegiance to the US, and then renounced the country they can certainly call him an oathbreaker, liar, false witness, or perjurer.

Not that I care personally. I'd do it myself if I were in his position.

ahoyhere8• 16 years ago

If you are born a US citizen, you don't have to pledge anything to stay a US citizen. It's a birthright. You don't have to pledge anything to get a passport.

So you can't call him an oathbreaker, liar, false witness, or perjurer.

He's just a man who gave up his citizenship because it was undesirable.

bediger• 16 years ago

I "pledged allegiance" thousands of times from about age 5 on. Until about age 13 I didn't even think about, pledging allegiance constituted a ritual at the start of a day of school, which was pretty ritualistic in and of itself.

Even after I started to think about not saying the "Pledge of Allegiance" I decided that the cost was too high, by observing the Jehovah's Witness in the classroom who didn't say it.

I think that after saying the pledge became a habit, it became a matter of saying it under duress. And the school authorities cooperated in promoting this.

So, I personally regard that pledge as voided by the semi-official duress placed on my as a child by school authorities.

alain94040• 16 years ago

Can someone help me with this apparent contradiction: "pledging allegiance" is pretty much the oppostise of "being free". How do you reconcile the two?

Really, the textbook definition of being free is that you have no allegiance.

david9277• 16 years ago

I'm a U.S. Citizen and next month I'll be giving up my passport to be a citizen of the Czech Republic.

Normally I would keep both passports, but the way the U.S. taxes its citizens abroad pretty much precludes that.

arethuza• 16 years ago

Any idea why the US objects to people having dual nationality?

david9277• 16 years ago

They don't object. (The Czech Republic does.) And the reason they don't object is that they're getting tax revenues from you but you're not consuming services.

ahoyhere8• 16 years ago

Archaic ideas that go along with "Thou shalt have no other god before me."

If you pledge your allegiance to another country -- which includes accepting citizenship -- you sacrifice your US citizenship as a de facto result.

This only doesn't apply to countries with special grandfather clauses for blood relations, for example, my friend Patrick got dual citizenship with Ireland at 21 because his grandparents immigrated to the US.

I hear, however, that the State Dept is fairly lenient if you want to beg for your citizenship back.

octover6• 16 years ago

Partly it's because if something happens, military coup, war or something it complicates and possibly prohibits the US from rescuing one of their citizens cause the other country you have citizenship with is merely dealing with one of their citizens. I believe it's really only ever going to be a problem for non-developed countries.

halostatue• 16 years ago

They don't. I still maintain my U.S. citizenship along with my (now eight-year) Canadian citizenship. If I were forced to choose, I know which one I would choose—but I am, at this point, not forced to choose.

markbao2• 16 years ago

Can an expat/tax guru shed some light onto how that whole tax thing works? Do you pay local tax + US federal tax, or something?

david9277• 16 years ago

You pay the taxes of the country you're in, and also U.S. taxes. Now you have some write-offs, such as the Foreign Earned Income exemption and you can write off the resident country's taxes, but it's still expensive -- and going to services you're by definition not using.

DougWebb• 16 years ago

There are also tax treaties with some countries that can reduce the burden. For example, as a NJ resident who works in NY I only pay taxes to the jurisdiction that wants more (which is NY) because of an agreement between the states. I'm pretty sure there is a similar agreement between the US and Canada, where the US gets the income tax while Canada gets all of the sales tax.

ahoyhere8• 16 years ago

Living in Austria, I have to pay the total of my Austrian taxes... but the US gets first cut. So if I theoretically owe $25,000 to Austria total, but $20,000 to the US, I pay the US the $20k and Austria gets $5k.

Even though I get awesome healthcare and other social services from Austria.

Basically, it's the world's shittiest deal.

confuzatron• 16 years ago

That's deeply strange. Presumably Austria, or the EU, have an agreement with the US that allows this to happen. On the face of it, you're saying to the Austrian government "I know I earn X of your Earth Euros, but I'm going to be sending a large chunk of that out of the country, tax-free, mkay?".

starkfist2• 16 years ago

This sounds deeply wrong, unless Austria has an odd arrangement with the USA. It is not like this in Japan or Australia. In many countries, taxes are automatically deducted and it would be impractical if not impossible to give the USA first cut. Also, if you get residency in a state with no income tax and form a corporation in the USA you can pay yourself below the foreign earned income exclusion and for most practical purposes owe the USA nothing. I would get a second opinion from a different tax specialist.

holdenc• 16 years ago

The Foreign Earned Income tax credit if $91,500 for 2009. But more than likely you'll still be on the hook for Social Security and Medicare (depending on the country) so you'll likely be paying a minimum of 15% tax.

Anything over the $91,500 gets taxed as if earned in the normal US tax bracket. So if you happen to be running a successful business abroad, get ready to pay the US dearly.

markbao2• 16 years ago

(different comment, different question)

It sounds like renouncing your citizenship is somewhat permanent. If you ever wanted to come back for an extended period of time, can you re-apply for Permanent Residency?

I was a citizen of China (now a US citizen). It took years for my green card to be processed, and a good amount of time for citizenship.

david9277• 16 years ago

I don't understand the question. You mean, if you give up your US passport, can you get a green card later? I think you can but you wouldn't receive any special treatment from having had the passport earlier.

Retric• 16 years ago

I think in some cases you can skip and they let you pretend you never left. However, you will need to pay taxes on the missing years etc.

FluidDjango• 16 years ago

If you dislike the idea of being taxed while residing abroad, how about the idea of being "exit taxed" for the right to stop being taxed:

"Relinquishing U.S. citizenship is a fairly simple process: after filling in a few forms, and in some cases, paying an exit tax (based on the applicant's worldwide income and assets)..."

Wonder how much that amounts to?

ojbyrne• 16 years ago

I don't know the specifics but I do know it has one particularly onerous clause for people in startup land. Any illiquid assets must be sold (perhaps just valuated) and capital gains paid on the proceeds.

CalmQuiet• 16 years ago

> based on income and assets

In other words, "Sure, you can leave. Just send us a chunk of yourself... even if you made it on foreign soil and using foreign resources."

geoka9• 16 years ago

Exactly my sentiments. However, since it says "in some cases", maybe this refers to paying the regular taxes due before relinquishing.

jaaron• 16 years ago

No, the exit tax can be pretty bad:

"The so-called ‘mark-to-market' tax will apply to the net unrealized gain on the expatriate's worldwide assets as if such property were sold (the ‘deemed sale') for its fair market value on the day before the expatriation date."[1]

[1] http://www.withersworldwide.com/news-publications/324/exit-t...

squidsoup• 16 years ago

I've been living abroad for 12 years and wasn't even aware that I was expected to pay taxes in the states. Presumably if I ever move back to the US to work this is going to bite me in the proverbial...

david9277• 16 years ago

Ass..uming that you make less than $91,500, and that you haven't been back for more than 30 days, you're ok. The Foreign Earned Income Exclusion means that "Americans working abroad can exclude up to $91500 per year from their US taxable income."

ahoyhere8• 16 years ago

Which, if you're moderately successful and/or earn in euros or pounds, is very easy to reach.

And you have to pay the US first, meaning the country where you stay is gipped, even while providing THEY provide you with social services.

Which the US, of course, doesn't.

octover6• 16 years ago

You should go back and file past years if you can, so long as you have filed for the past 5 or 7 years (whatever the IRS's window to audit or call into question a return is) you will be fine. You pay your local taxes first and then file the federal paying any amount above and beyond what you've paid (assuming a double taxation treaty exists). Rule of thumb if you aren't making a ton of money and the local tax burden is more than the federal burden you won't owe anything, but you still have to do the paperwork.

pelle2• 16 years ago

As David927 mentions you probably don't owe anything. But you still need to file 1040's and 2555 for every year. So few Americans actually do it, you get the feeling that they are so happy to just receive them. Before returning to the US I did a batch of 5 tax returns with no tax liability.

The other thing to note is that if you are married even to a foreign spouse without green card you can file jointly and you now get a full $182,800 exclusion. There are also rules where you can deduct further for housing expenses as well as tax paid locally.

This is the IRS guide you should read. http://www.irs.gov/publications/p54/index.html

The bad news though is that for entrepreneurs, consultants etc. If you are self employed, in a partnership (including LLC's) you are not exempt from paying self employment tax (15.3% of the first $106,000 earned.

This is likely the biggest issue for some of the people renouncing citizenship.

The second issue also mentioned in the article is reporting of bank accounts containing more than $10k.

Final bad news for US entrepreneurs abroad is that your startup might be classified as a Controlled Foreign Corporation, which in theory could lead to it being taxed in the US. These rules are so complex they make my head hurt just thinking of them. This PDF seems to explain it fairly well:

http://www.avcadvisory.com/documents/pdf/CFC.pdf

rubyrescue• 16 years ago

As a US expat, I setup an S-corp for 2009 and it is VERY beneficial for consultants who live abroad and can setup their own US company: because it allows me to pay myself a reasonable salary underneath the Foreign Earned Income Exclusion; to take business expenses against the remainder, and most importantly, NO self-employment tax.

DrSprout• 16 years ago

It would be better if there were some way to suspend US citizenship. That said, you shouldn't be allowed to vote while not being subject to the tax code. It's the flip side of "no taxation without representation," and it's equally important.

octover6• 16 years ago

I think I'd happily suspend my tax burden and right to vote while living abroad. If you want to vote you got to file your taxes seems to be fair to me.

ahoyhere8• 16 years ago

It's extremely difficult to vote from outside the US, anyway, because you cannot vote in a "nationwide" sense -- you must vote as a citizen of a state.

Which, since you don't live in the US and ergo don't live in a state, is tricky. Typically you can vote in your state of last residence, however...

...voting in your state of last residence can cause you to be liable for income taxes to the state.

Land of the free, says I.

dmm• 16 years ago

Live in New Hampshire: no state income taxes.

gcb• 16 years ago

voting nationaly is overrated (you have 2 options).

And voting in your state of last residence already works like you described. You vote, you pay for that, for medical services you didn't use, for roads you don't drive, etc, etc...

DanielBMarkham• 16 years ago

We have several trends happening all at once. Entitlement programs are going broke -- the U.S. government has promised more than it can deliver. More places abroad, with low costs of living, are becoming very amenable to U.S. citizens. Finally the U.S. is reaching out for incomes and bank accounts above certain amounts -- and those amounts are subject to change.

Seems to me (without doing the math) that there is already an income amount somewhere around 10K a month or so where it might be better to be a citizen of a different country. You could take the tax money and pay for the services yourself. If this trend continues, it's possible that we could see an exodus of folks from the U.S. Kind of like white flight but on a global scale.

octover6• 16 years ago

Many Americans living abroad are ignorant of the duty to still file federal taxes while residing abroad. It gets fairly complicated fast and mistakes can have huge ramifications for those that ever intend to move back. If you haven't filed you can go back and file them late. So long as you live in a country with a double taxation treaty with the US (most countries do, google it) and your local taxes are more than the fed wants you won't owe anything.

It gets worse if you work for yourself, i.e. I'm a freelancer, and so I get to pay social security and medicare no matter what. Also recent law changes have meant that you have to report any bank account with more than $10,000 in it. As to services of the embassy they charge for everything I've used them for, and it's not cheap, more annoying cause at least the Stockholm embassy won't take a US check or bill pay from Swedish internet banking, instead you have to get the equivalent of a cashiers check which is all but obsolete in Sweden.

I'm going to go dual citizenship this summer. I want to be able to vote in national elections and it will allow me to live and work anywhere in the EU, plus sometimes it's easier to travel on an EU passport. Sometimes I want to toss aside the US citizenship cause of the headache and expense of filing my taxes properly, but I wouldn't want to close the door on being able to return to the US easily either.

The whole tax citizens abroad is mostly based in a bygone era when rich people went abroad to avoid taxes. These days the world is a lot smaller and it's biting regular folk in the ass.

ahoyhere8• 16 years ago

I plan to give up my US Citizenship as soon as possible. Unfortunately, it'll be another 4 years' wait for me.

hannibalhorn• 16 years ago

It's now becoming so popular that the Department of State is introducing a fee to renounce - $450. See DOS-2010-0035-0001 on regulations.gov.

quant18• 16 years ago

It gets even worse if you try to incorporate a business abroad and own more than 50% of it. Form 5471 and 8832. Wrangling with the definition of a CFC, qualified dividends, etc. Subpart F (the rules for when the U.S. government considers your company's income as if it was just plain old personal income). Etc.

All these laws were designed to catch rich U.S.-resident tax evaders, but they have the side effect of making life miserable for U.S. expatriates. And probably it won't change, because no one in the U.S. really thinks about expatriates anyway ... maybe because of the ingrained mental image that the U.S. is supposed to be a sink, not a source, of migrants.

And for everyone else, it makes for a very strong incentive NOT to partner with an American when you start a company, because of all the accountants' fees you'll need to keep up with the paperwork, or worse, the danger that you simply don't know about any of these draconian requirements and it hits you like a truck years later when you have some serious income.

Another really perverse incentive created by U.S. taxes on expats is the housing exemption. Basically, if you have a dollar, you can either spend that whole dollar on renting a nicer apartment, or pay 35 cents to the U.S. government and be left with 65 cents to save or spend. Hence lots of American expats keep spending more and more on housing, up until the point where the marginal utility of $1 more square footage or $1 swankier address drops below 65 cents ... and of course, driving up prices for everyone else.

Why More U.S. Expatriates Are Turning In Their Passports

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