1 in 4 Americans Abroad Want To Renounce Their Citizenship — And Taxes Are the Reason
About 9 million American citizens live abroad. They include executives at multinational corporations, missionaries and college students. Some immigrated to the U.S., became naturalized citizens and then returned to their home country to retire. Most like their situation, but a growing number are so unhappy that they are considering giving up their U.S. citizenship.
Greenback Tax Services, an accounting firm that specializes in work with U.S. expatriates, surveyed 3,100 U.S. citizens living abroad and found that 85% do not feel fairly represented by the US government. The annual Independence Day party at the consulate doesn’t cut it with them. Taxes were cited as a problem by 42% of respondents and contribute to 4% of expats planning to renounce their citizenship and another 18% seriously considering it.
Their problem? The U.S. tax system makes their lives unduly complicated and expensive, CNBC reports.
The U.S. taxes citizens based on all of their income worldwide. In every other country, taxation is based on residence. A British citizen living in Vietnam owes taxes in Vietnam, not the U.K. Under the Foreign Account Tax Compliance Act, an American citizen in Vietnam owes taxes in both countries if their annual income exceeds $108,700.
In addition to worldwide taxation, the U.S. government requires foreign financial institutions to report holdings of U.S. citizens that exceed $10,000. The logic behind the law was catching people who used offshore accounts to shelter money from U.S. taxes. However, it creates enough of a paperwork burden that many international banks refuse to accept American customers, and those that do often charge high fees. This makes everyday activities such as depositing a paycheck or saving for retirement expensive or even impossible.
Renouncing citizenship is a serious matter, but it is possible. The State Department requires that it be done at a consulate outside the United States and highly recommends that anyone doing so has a second passport.
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Last updated: May 20, 2021