US: Increase in Expat Americans Renouncing Citizenship

A law introduced in 2012 in the US, to combat tax fraud and encourage transparency, has resulted in many Americans living overseas renouncing their US citizenship in droves. 

Since US taxpayers are taxed on their worldwide income (the only other country to do so is Eritrea), as part of an obligation to file a tax return every year, American residents overseas have always had to comply with various special provisions. These include; the foreign earned income exclusion, foreign tax credit, housing provisions, and disclosure requirements. 

FATCA (Foreign Account Tax Compliance Act), introduced as a means to increase the compliance of US taxpayers with foreign accounts, expands the scope of what can be taxed by the IRS and places a burden on foreign banks to identify US citizens among their customers to US tax authorities.  Once identified, the Americans” assets reported by the banks are meant to be cross-checked against those self-reported by them. Heavy penalties can be imposed for under-reporting. 

As a result, many Americans living overseas are being denied access to basic banking facilities. Foreign banks are understandably wary of servicing Americans for fear of falling foul of the reporting obligations and, as a result, facing hefty fines themselves.   

Many “accidental Americans” are also being caught out and are facing an avalanche of reporting requirements and, in many cases, tax bills from the IRS. Such people, either those with an American parent or those born in the US to foreign parents but brought up elsewhere, must either provide proof that they are in full compliance with their US tax obligations or pay to renounce their US citizenship – something many never knew they had in the first place.

The US State Department has acknowledged a rise in renouncement of US citizenship applications in recent years, and admits that these figures are related to the US taxation policy. These are expected to continue to rise in the future. 

Should you need advice regarding your US citizenship status and accompanying tax obligations, or on US immigration in general, please email us at enquiries@newlandchase.com.

 

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