Comment by xpl 2 days ago
> If you don't want to pay those taxes, then renounce your US citizenship once you have
Haven't you heard of exit tax? If you renounce citizenship (or surrender your 8+ year green card), you must pay 30% of your worldwide assets' value (as if you sold it for cash) to the IRS. And if you own something illiquid, you're deep in trouble!
So no, people can't renounce their U.S. citizenship easily, the IRS has accounted for that...
That doesn’t make any sense. I’m not a citizen any more, so clearly I’m not accountable for any tax.
If you're no longer citizen you won't be accountable for any tax accrued after you're no longer a citizen.
But you're still accountable for debt, so all they need is to frame this as taxes on earnings and property that you have accrued while you were a citizen and you keep to be accountable for your debts even after you renounce the citizenship.
Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
https://www.irs.gov/individuals/international-taxpayers/expa...
> Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
In most western country anything involving a (even local) bank will be a headache already when you're an American citizen. I can't imagine it would be easier if you're a former American citizen with a large debt towards the US.
In Switzerland, almost no bank wants to deal with you if you have US citizenship. Its easier to just avoid creating whole new department for that reporting, risk getting sanctions if you make a mistake etc.
US in this case is a global bully, based on some talks with people involved in such processes also arrogant, very aggressive in enforcement, at the end punishing its own citizens just because they can.
Their choice, but if I or my kids would ever be in the situation of potentially gaining citizenship or green card (that probably won't ever happen, life here is much higher quality overall for people like me), this alone is good enough reason to not do it.
It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
Most higher developed countries have it in some form (with varying degree of strictness, scoping etc.).
Technically you also pay the tax in the process of losing your citizenship not after losing it.
A more "fair" approach probably would be if capital (especially bound capital which generates more capital, like companies) are "pinned" to a country and transferring it from there involve paying tax (oversimplified).
Then when renouncing US citizenship you would only need to pay "exit" tax if you also move your capital out of the US (e.g. your US company) but if you have a UK company it would already be pinned to the UK and you wouldn't pay exit tax on it (but you would have had to pay taxes on moving capital from the US to the UK to found the company).
But I mean it's a purely hypothetical approach:
- it is very much in conflict with globalization and investing in foreign companies (you have to pay exit tax on the money you invest outside the US!). This means it also hinds projection of US power by getting influence into foreign companies through investments.
- it's not really viable to retroactively apply it
- it kinda requires all countries to agree on this law
- it would mess with investment banks, fond etc.
- it's a mess when it comes to international buying of goods (as you want to prevent laundering capital moving through unusual good buying schemes)
> It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
In basically every other country you don't get taxed when you haven't even lived in the country for years/decades.
I think the only other countries that tax their citizens in other countries like that are North Korea and Eritrea.
It's about as definitive a form of taxation without representation as I can imagine...
> It's about as definitive a form of taxation without representation as I can imagine...
American citizens retain the right to vote in US elections no matter where they live. They have representation.
> It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
It really does not sound common at all. In all countries where I have lived, my citizenship did not enter the picture for the local tax authority or that of my country of birth. All that matters is my resident status. I did not renounce any citizenship (because why would I? It comes with no downsides), but I cannot see them going after my foreign possessions, considering they entirely ignored them for years. And if they did, a loophole would be to not renounce it because again it comes with no downsides.
I actually checked with my country of birth, and renouncing simply requires me to send a declaration to the authorities and they have 2 months to accept (it’s accepted by default if they do not reply within 2 months). No other requirements or anything.
Do you have many examples of countries that do what you described?
pretty much every EU country has a similar law
they do often work slightly different based fundamental differences in tax and law models so it's not always coupled to citizenship but practice still quite the same as in you get taxed when moving "capital" (mainly companies) out of the country
"pretty much every EU country" is not an example, so I guess no, then.
Anyway, this is not what was discussed here, and has nothing to do with citizenship. The example was a non-resident's business abroad being taxed when giving up their citizenship. As far as I know, there is no European country that does anything remotely equivalent. I am willing to accept that there might be some, but this is far from the norm.
Moving stuff across borders is something entirely different.
All taxes are arbitrary. It doesn't need to "make sense". The only reason countries tend to tax their own citizens is more because of the practicalities of enforcement rather than any stance on the philosophical nature of taxation; as this particular rule illustrates.
It's only if you qualify as a 'covered expatriate' though. I'm not a lawyer or an accountant but a plain reading of the standard suggests the vast majority of Americans would not be covered.
https://www.irs.gov/instructions/i8854#en_US_2023_publink100...
I think the key would be how they arrive at the net worth numbers. If it's just a calculation of all your assets as if they were sold at FMV, ~90% of the US is below the net worth threshold.
https://dqydj.com/net-worth-percentiles/
The average tax liability standard looks like it would take 5 years at $600K+ of adjusted gross income, too. Plenty of people would meet this standard. Most people would not.
So it basically says if you net worth is over $2 mil, you're need to pay exit tax, right?
If a house and 401k also counted towards net worth, it could impact quite a few Americans. Besides, those who expatriate for tax optimization purposes usually have a significant amount of wealth.
> If a house and 401k also counted towards net worth, it could impact quite a few Americans
I have no sympathy for people who want to dodge taxes being forced to pay a tax on income that the government has deferred taxes on while they were a citizen making taxable income in the US, and presumably if you're abandoning your citizenship you're not keeping your home and would have already paid sales and capital gains taxes on it when you sold it.
You're a covered expatriate also if:
" You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation. "
I agree you should pay up your taxes but this will not only recover the due taxes but it will take more.
That’s why you put everything into trust first.
I know a few folks who gave up their US citizenship over tax, and both had to plan for about a decade to do so without paying exit tax - and their lives continue to revolve around being tax exiles - 89 days here, 44 days there, etc. etc.
I’m glad to be a Brit, if only because the revenue doesn’t pursue me around the planet.