1 in 4 U.S. expats would give up citizenship due to tax issue

Around 1 in 4 U.S. expats is “seriously considering” or “planning” to renounce their U.S. citizenship, according to a survey from Greenback Expat Tax Services. The primary reason is due to the onerous, burdensome and costly process of filing U.S. taxes, reveals the survey, which polled 3,200 American expats living in 121 countries. “You have people doing what seems to them like very normal things, like saving for retirement, or buying a home. But when you do it overseas, sometimes you can get yourself into a whole lot of trouble,” says David McKeegan, the co-founder. Unlike the vast majority of countries around the world, the U.S. demands that its expats pay annual U.S. income taxes on worldwide earnings, including job income and business and investment incomes, which involves filing and paying taxes in two jurisdictions.

What is FATCA?

The demand is part of the Foreign Account Tax Compliance Act, or FATCA.

Enacted in 2010, FATCA is virtually unknown to most Americans but has been wreaking havoc with the global financial system outside the U.S., according to critics. Touted as a weapon against ‘fat cat’ tax evaders stashing funds offshore, FATCA is, they say, instead an indiscriminate information dragnet requiring all non-U.S. financial institutions (banks, credit unions, insurance companies, investment and pension funds, etc.) in every country in the world to report data on all specified U.S. accounts to the IRS. If any country refuses to comply, FATCA provides for its financial sector to be hit with crippling penalties that could, in effect, shut it out of the world’s largest economy and marketplace and, therefore, tank its economy. FATCA, says deVere CEO Nigel Green, is “an extra-territorial diktat that burdens other countries’ financial institutions and their clients, which violates other countries’ sovereignty, and which is detrimental to their consumers and taxpayers.” He adds: “FATCA turns law-abiding, middle-class Americans living overseas, of whom there are approximately nine million, into financial pariahs.”

Easing the FATCA burden

There are established, legitimate ways for U.S. expats to mitigate the burden of this controversial legislation. It’s recommended that advice is sought from a professional, independent financial adviser with relevant cross-border experience, as the issues around tax in different jurisdictions are notoriously complex. Nigel Green continues: “Most Americans abroad are proud of their citizenship and indeed many find it an integral part of their identity when living overseas. Therefore, giving up citizenship is a distressing idea and something they wouldn’t do unless they felt there was no alternative. As such, and because of the other financial implications of doing so, such as exit taxes, I would urge anyone who is considering giving up their U.S. passports for financial reasons and without wanting to, to seek specialist advice. Don’t feel forced by Uncle Sam [the IRS] to give up your citizenship until all the options have been fully explored.”

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