Monday, 14 May 2012

Americans giving up citizenship due to taxes?

The percentage of Americans living and working abroad who have renounced their US citizenship is up 700% in the past 4 years.
About 1,780 expats gave up their nationality at US embassies abroad last year, up from 235 in 2008, according to figures from the US government’s Federal Register.
American Citizens Abroad, a Geneva-based organization, notes the US government does not always distinguish between tax dodgers with offshore accounts and expats in need foreign banking services.
The US is the only nation in the Organization for Economic Cooperation and Development (OECD) that taxes citizens wherever they reside, and is constantly searching for tax cheats in foreign countries, as the government looks to curb its huge budget deficit.
An estimated 6 million Americans living and working overseas are facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, and as a result of being shunned by local banks are weighing the cost of holding a US Passport.
Renunciations are high Switzerland because American expats expect extra scrutiny of their affairs because of the US investigations of a dozen Swiss financial firms for aiding alleged offshore tax evasion.
During the “Renunciation Ceremony” US embassy staff ask exiting Americans whether they are acting voluntarily and understand the implications of giving up their passports.
They have to pay a fee of $450 to renounce and may incur an “Exit Tax” on unrealized capital gains if their assets exceed $2 million or their average annual US tax bill is more than $151,000 during the past 5 years.
They receive a certificate within 3 months, telling them they are no longer American citizens and entitled to the services and protection of the U.S. government.
The US State Department does not disclose annual figures but the data shows that “on average” 1,100 people give up their US citizenship each year.
The US taxes citizens regardless of where they reside, overseas income of as much as $95,100 is exempt and credits help compensate for foreign taxes paid.
Americans, who disclose their non-U.S. bank accounts to the IRS, must file Form 8938 beginning in 2012 that asks for all foreign financial assets, including insurance contracts, loans and shareholdings in non-US companies.
The 2010 FATCA law requires banks to withhold 30% from “certain US-connected payments” to some accounts of American clients who do not disclose enough information to the IRS.
Failure to file Form 8938 can result in a fine of as much as $50,000. Clients can also be penalized 50% the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.
Taxing Americans resident overseas is a hold over from the Civil War and the introduction of federal income tax in the year 1861. The rules make it harder for Americans to hold foreign bank accounts and gain access to mortgages.


No comments:

Post a Comment