Why do people renounce their citizenship? It can be over family, tax and legal complications, and is hardly like changing clothes. If you can keep dual citizenship, that can be fine, but it isn’t always possible under the law. To view a helpful infographic from MoveHub displaying the countries around the world and their position on dual citizenship, click here.
Regardless of whether it is a dual citizenship snafu that prompts someone to renounce a particular country’s citizenship, is it hard? Not usually, though requirements vary. And so does the extent you must dig in your wallet. Some countries make citizens pay a fee to hand in their passport. Some countries have eliminated fees altogether. According to Movehub, the U.S. has the highest fees in the world to renounce citizenship at $2,350.
The U.S. was criticized for hiking its fee to renounce by 422%, from $450 to $2,350. The U.S. State Department said raising the fee from $450 to $2,350 for renunciation of U.S. citizenship was about demand and paperwork. Perhaps, but American expatriations grew rather than declined. And the $2,350 fee is more than twenty times the average level in other high-income countries. The State Department has complained about all the extra workload they have to process people who are on their way out.
|Fee for Renouncing Citizenship Around the World (in USD)|
|Courtesy of MoveHub|
The State Department also increased the fee for relinquishment from $450 to $2,350. Previously, there was the enhanced $2,350 fee for renouncing, and a smaller $450 fee for relinquishment. It may be a distinction without a difference. As the State Department put it, it was just harmonizing the two, which are similar in any case. Leaving the U.S. for good isn’t just a matter of getting on a plane. It is not usually primarily about taxes, although taxes often play a part. And when it comes to taxes, persons leaving the U.S. may hope they do not need to keep filing with the IRS every year.
Getting a Certificate of Loss of Nationality and exiting will address the immigration side of the legal issue, but not taxes. Obtaining a Certificate of Loss of Nationality doesn’t mean the IRS will leave you alone. To leave America, you generally must prove 5 years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $160,000 or more (that’s tax, not income), you pay an exit tax. It is a capital gain tax as if you sold your property when you left. At least there’s an exemption of $680,000. Long-term residents giving up a Green Card can be required to pay the tax too.
No one wants to pay an exit tax if they can avoid it. Sometimes planning and valuations can reduce or even eliminate the tax. But taxed or not, many still seem to be headed for the exits. Some groups are especially vocal about their tax plight. Last year, dual citizens in Canada trying to shed their U.S. citizenship created a backlog at the U.S. consulate in Toronto. President Obama has joked about his birth certificate, but accidental American status is no joke. Many end up in untenable financial situations.
With global tax reporting and FATCA, the list of the individuals who renounce keeps going up, and many aren’t counted. The Treasury Department is required to publish a quarterly list, but these numbers are under-stated. Still, there have been record numbers renouncing.
For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
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