“You’re talking about the options for establishing residency in a foreign country. But I don’t want to establish residency in the place where my husband and I choose to retire. I don’t want to give up my U.S. citizenship…”
— Remark from a conference attendee yesterday afternoon
One thing has nothing to do with the other. Citizenship and residency can be completely unrelated.
Residency is your right to be somewhere…to “reside” within a country’s borders.
You can reside in a country without being a citizen of that country. Sometimes, extended permanent residency can lead to citizenship, but not always. And, if your residency status comes with an option for citizenship, you don’t have to pursue it.
Although being a dual national–that is, a citizen of more than one country…your country of birth, for example, and a second country where you acquire citizenship–has its advantages.
But let’s leave that aside, dear conference attendee, as it doesn’t sound as though you’re interested in pursuing dual nationality. You’d like, simply, to reside somewhere new in retirement.
No problem. This won’t affect your U.S. citizenship in any way. In fact, it’s no easy thing to give up your U.S. citizenship, and you aren’t going to lose it accidentally.
You’re here in Panama this week attending the conference. Say you decide by Saturday evening that you’re sold. Panama is for you. You decide to stay on…and you spend the rest of your life soaking up the Panama sunshine, never again setting foot on U.S. soil.
Again, your U.S. citizenship is unaffected. As long as you file your tax return with Uncle Sam every year, you’re fine. Bottom line, that’s all the U.S. government cares about. They don’t care where you go or how long you’re away…as long as you report your income to the IRS.
Living overseas, you’re no longer a resident of the United States…but you’re still a citizen. And, as I said, relinquishing your U.S. citizenship is no easy thing. The U.S. government makes it as difficult as possible, for, as long as you carry a blue passport with an American eagle on the cover, you’re obliged to file a U.S. tax return.
Another thing to understand about this residency abroad issue is that there are three ways to be a resident of another country. You can be a tourist (which is a very passing kind of residency), a temporary resident, or a permanent resident. Each of these things requires different paperwork and a different visa (although, in some cases, you can be a tourist without any visa at all).
As you consider your options, consider this: Maybe you don’t want to be a permanent legal resident anywhere.
In some countries (Belize and Panama, for example), permanent residency comes with upsides (in the forms of tax breaks and other discounts and savings). On the other hand, becoming a permanent resident in another country can also lead to a local tax obligation. If you’re an American…yikes. You’re still obliged to Uncle Sam, remember…and now, maybe, you’re got a second obligation, as well.
You can avoid the administration hassles, as well as any potential tax obligation, by not settling long enough in any one place to trigger the permanent resident requirement. (Typically, this means being physically present in a country fewer than 6 months out of any 12.)
Choose two (or three) overseas retirement havens and divide your year among them. This way, you’re officially resident nowhere…but, yes, you’re still a U.S. citizen.