5 Reasons for Expats Giving Up Their American Citizenship

You must have heard the latest buzz about expatriates giving up their US citizenship. The new rule under the Foreign Account Tax Compliance Act states that all financial institutions abroad will have to report if they have an American co-signer. This law is creating a lot of problems and majority of the Americans are of the opinion that foregoing their citizenship is the easiest way out. Here are the top five reasons for Americans giving their citizenship –

1.      Additional Tax Burden

Unlike many other foreign nationals, if you are a US citizen living and working abroad, you have a greater tax burden. According to the expat tax services, you will have to pay a tax to the USA on your earnings abroad. You already have to pay tax to the country you are living and working in and this increases your tax burden. Many people are giving up their citizenship to reduce this.

2.      Becoming A Liability In The Workplace

Any institution that fails to report an American account will be penalized under the FATCA. Secondly, the compliance cost is pretty high. These aspects of the new law can make you a liability in your workplace. It can hamper your relationship with the foreign employers and hinder your promotion.

3.      Problems With Financial Institutions

After the new regulations of the IRS, you must have seen that many foreign financial institutions are shutting their doors for American expats because they do not want to go through the administrative trouble of filing papers and reporting every American account they have. The Swiss Bank, for one, doesn’t want to be monitored and dictated by the USA and is, therefore, not keeping Americans in its client list.

4.      Rumors About Increased Taxation

There are rumors that American taxes will increase in 2013. There is supposed to be a major rise in income tax, estate tax and gift tax. This hike is going to further increase your taxation burden. If you want to save more for the future instead of paying the tax for a country you are not currently residing in and do not plan to visit any time soon, then giving up the citizenship is the better option.

5.      Administration Troubles

The IRS says that you will have to file a report annually if your bank balance in the foreign land exceeds a certain amount. Failure to report these small little things can result in criminal charges against you. Filing these reports is a huge task and it is not always possible for you to do it on your own and you have to get the help of an expert. These professionals charge a lot of money and this further increases your burden.

US government offers foreign tax credit which can help you escape the burden of double taxation, but it is not helpful if you earn a lot of money in the foreign country. Moreover, you will again have to file paperwork and wait for their processing.

Tags: Internal Revenue Service, IRS, Tax, Taxation in the United States

Category: Taxes