You may have seen an article on the BBC website reporting on the record number of Americans relinquishing their US Citizenship in 2015 due to the filing requirements imposed upon them by the IRS and Department of Treasury, and the fact that they are finding it increasingly difficult to hold foreign (ie Non-US) bank accounts.
American citizens and Green Card holders (GCHs) must file tax returns and complete additional financial reporting in the US regardless of where they are resident as the US is only one of three countries in the world that base it’s taxation purely on citizenship. (The other two are Eritrea and North Korea ).
Foreign banks are becoming adverse to accepting Americans and GCHs due to the fact that in 2012 the US enacted a law called FATCA (the Foreign Account Tax Compliance Act). FATCA imposed that the foreign banks have to identify all of the Americans and GCHs who have accounts with them and supply their details to the US tax authorities otherwise the bank can be subject to a penalty of 30% on it’s dealings with the USA. The implications of this is that banks, in some circumstances, would rather refuse US Citizen’s and GCH’s custom than potentially incur the penalty. You may also incur similar problems if you are an “accidental American” – ie someone born to American parents but born in another country or other nationalities born in the US.
Due to these reasons 4,279 Americans around the world gave up their citizenship in 2015 which is an increase of 20% on the previous year which is causing long delays in getting an appointment at the embassy to do so. In November the US Embassy increased the fee for expatriation to $2,350 (which was a 400% increase) and we have heard rumours that this may increase to around $5,000 in the near future. You should note that for an American or GCH to renounce their citizenship they must first have filed the five most recent years worth of tax returns with the IRS. In addition, upon renouncing citizenship, they may be subject to an exit tax depending on their circumstances.
We have assisted many people over the years in renouncing their citizenship as they found that the burden imposed upon them by the IRS and by the banks under FATCA is too onerous. In doing so they can then plan for their future without having to think of the US tax consequences of any financial investments or lifestyle choices. In seeking our advice we have been able to help them become compliant (if they had not previously been) and advising them whether the exit tax is applicable to them and if so help them plan around it and then renounce their citizenship.
