An increasing amount of U.S. citizens abroad are renouncing their citizenship.
The Federal Register released the latest figures on May 2 of people renouncing their citizenship and it climbed to 1,001 people from January to March when it was 679 people in the same time period last year. The total number tripled to 3,ooo in 2013 compared to 2012.
Taxes play a large part in the role of people giving up their citizenship because the United States is the only nation that is part of the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.
The Foreign Account Tax Compliance Act (FATCA) has also further complicated matters for American citizens abroad because it requires foreign banks to start turning over information about U.S. owned accounts to the IRS. It has caused banks abroad to tighten their requirements for American citizens opening accounts as well completely turning them down.
According to an article in the Wall Street Journal, FATCA will go into effect July 1, but the IRS will not strictly enforce requirements in 2014 and 2015, as long as firms are making a good-faith effort to comply.
CNN recently covered a story on the subject of Americans renouncing their citizenship where the gathered stories from the expats who have already done it and what made them pull the trigger. Here is an excerpt from the article:
Name: Donna-Lane Nelson, 71
Lives in: Geneva, Switzerland
I renounced my U.S. citizenship in 2011. After I did it, I was so emotional that I threw up outside the embassy.
During my renunciation, I broke down. It was like getting a divorce. America gave me my education, a good career path, and I came from a beautiful part of the country. This was very hard.
Before I took the last oath, I asked if I could change my mind. The embassy worker said maybe, with official permission. But I still went through with it.
My decision to renounce was triggered when my bank threatened to close my account because I was American. What would I do without a bank? Americans in Switzerland were having trouble with their investments, getting credit cards, and some weren’t even getting loans.
I’ve been in Switzerland since 1990, and became a citizen in 2005, because I wanted the right to vote where I was living. The Swiss can tell I have an American accent, and I’m often explaining that I grew up in the U.S. and have a daughter who still lives in the Boston area.
Filing taxes from abroad had always been a real pain. I was double taxed on my full pension, but it didn’t bother me so much to pay taxes — it was the annoying paperwork. I used to do my own taxes, but I started going to a professional when I learned about the new disclosure laws. I’m glad I did, because there were a lot of forms. Tax prep costs me about 1,000 Swiss francs ($1,123) a year.
Something to keep in mind before giving up citizenship is that you must have a second passport beforehand. According to Lief Simon in his Offshore Living Letter, “You can’t be stateless. If you’re considering formal expatriation, the first step is to acquire a second passport. Without that, Uncle Sam isn’t going to let you renounce.” Besides being able to renounce your citizenship he goes on to offer a few more reasons that a second passport can be handy to have.