The cost of renouncing US citizenship has gone up with the introduction of the new Foreign Account Tax Compliance Act (FATCA) tax reporting rules.
Many US expats are unhappy with their government because of special tax rules.
The US is one of few nations to tax expats on their worldwide income – including earnings generated by offshore savings and income even if they live in another country.
FATCA may be the last straw for many expats considering whether to give back their passports and become tax resident elsewhere.
The FATCA reporting laws oblige tens of thousands of financial institutions around the world to report the balances and income from bank accounts and investments controlled by US taxpayers to the Internal Revenue Service (IRS).
Fees hiked for expats
The IRS then cross-checks the data against personal returns to make sure taxpayers pay the correct amount of tax.
FATCA started on July 1, 2014 and the first reports are expected in Washington starting this month.
Many tax experts in the US have blamed FATCA for an increase in US taxpayers returning their passports.
Now, the US State Department, which administers citizenship renunciations, has increased the cost of giving back a passport – from $450 in July to $2,350 now.
“The cost represents the true cost of processing the paperwork for renouncing citizenship,” said a State Department spokesman. “Our view is if you want to hand back you passport, then that’s not a problem, but you should pay the full cost of processing the application and not be subsidised by US taxpayers.”
High taxes
The State Department also revealed most US expats handing back their passports are in Canada, Britain and Switzerland. These three countries account for 75% of all ‘expatriation’ requests.
US State Department under-secretary Patrick Kennedy claims high taxes on expat earnings and investments are behind most of the applications.
He also hinted that a number of US businesses are looking to relocate their headquarters overseas due to the country’s high rate of corporation tax – which is 35% compared to the lower rate of 20% in the UK.
Without revealing the current figures, the State Department indicated the number of expats handing back passports is 20 times higher in the US than other countries with comparable tax rates.
The spokesman also explained an increasing number of financial institutions in Asia, South America and Africa are turning away US customers because of the high cost of FATCA compliance, and that some banks in the European Union are starting to follow the trend.
And is the US government planning on anything to change what is going on?
Of course not. Lose a few citizens, piss countries off, spend $5 to get $1 in return, inconvenience citizen expats with their banking, so what who cares? It doesn’t affect them the least bit.
Some of these so-called ex-pats are no more USAmerican than U.S. Senator Ted Cruz was a Canadian when he picked up a newspaper last year and saw an article about Canadian lawyers confirming that he was still a citizen of Canada also. These innocent persons are being wiped out by penalties for failing to report their “offshore” bank account in their home town. The boundaries of the USA are the boundaries of the USA.
It’s true. We’ve got to get my Canadian college kid renounced. He was born in Ottawa, the capital city of Canada and has never lived a day in the U.S. Still, we learned the U.S. claims he is their citizen when we never considered him such. More importantly neither did he. It’s very expensive to renounce now and that on top of trying to pay for college. He’d not owe any tax to the U.S. given his low income but, all told before he is out free and clear it will have cost us close to five thousand just to get him renounced.
I relinquished in Sept. 2013 and my CLN still has not arrived. I did not do so for tax reasons as I’d never owe any and we are low/middle income. I did so because confiscating my CANADIAN spouses bank records just because he was married to me when he’s never lived, earned or worked a day in the U.S. was a bridge too far. No suspicion of wrong doing needed, no warrant just have an American in the family. I’m sorry but, I’m not going to have my whole family treated like a criminal when we’ve been law abiding our whole lives. No way. FATCA goes way, way too far. Then there is the fact that our mortgage is up for renewal and when we wanted to switch everything over to our credit union, they were gung-ho to have us until….they found out I was American. Then their tone changed completely. We can’t afford at our age to have our mortgage turned away. Then it hit me how I was being treated differently because of my nationality by these banks and CU’s. That is ILLEGAL in Canada. I started to donate to the Charter Challenge.
I’m sorry the U.S. is literally driving citizens abroad away with a stick but, you cannot live, bank and save normally with any foreign family outside the U.S. anymore and they really do not care one bit about any of us. I feel like I just divorced an abusive partner I was once in love with.
Sadly alot of us our forced to abide by the draconian laws since we our recipients of Social Security and/or Federal pensions. My overseas bank of 13+ years wants nothing to do with me now and im sure is just waiting for a reason to drop me. I recently started doing all my banking in the U.S and using a VisaDebit card to get cash advances abroad. It costs me an extra 1% in fee’s, but its much easier than wire transfers.
How would be able to run as president if he has dual citizenship?
Cruz claims he was a US citizen at birth because his mother was US born. It cost him $100 to renounce by mail, whereas US citizens are now having to pay $2350 and all kinds of hoop-jumping which includes often travelling to twice to a US consulate, 5 years of tax compliance ( that is if you don’t want to be branded a tax evader), and sometimes an exit tax. And still people are lining up!
US State Department under-secretary Patrick Kennedy has some nerve claiming that “high taxes on expat earnings and investments are behind most of the applications.” Canadian and British taxes tend to be higher than U.S. taxes. The simple matter fact is that the U.S. operates an unfair tax policy. It taxes things like foreign unemployment compensation and disability payments. It assumes that all of the money in a joint account is the American’s, a rule that has resulted in many foreign husbands removing their non-employed American wives from all accounts. Kennedy might want to educate himself on this issue by reading the recent Democrats Abroad report. The U.S. also has separate rules for foreign and U.S. pensions that work to the disadvantage of people working for a living abroad. It even taxes greencard holders with expired greencards that were not properly returned (so much for no taxation without representation). When my students in the past said that the U.S. was self-serving, I used to feel an obligation to stand up for the U.S. Not any more.
Isn’t that the truth!! Kennedy seems to be talking based on zero facts. There has been no study done on this and I wish their would be!!! It would quickly prove that the majority of the people put in the position of not being ABLE to keep their U.S. citizenship because of this situation did not now nor would they ever owe any U.S. taxes. For god’s sakes this is getting worse than key stone cops. Do they not have any factual information to share with the public or are they simply talking out of their postieror. It’s frightening because these people make laws and base their reasoning on myths. Heaven help us.
I don’t think I know any rich people who’ve renounced, and I know plenty. The only rich person I heard about taking steps to renounce ended up not doing so because the exit taxes would have killed him. It seems that wealth may be a real deterrent to renouncing in many cases.
Why do you think they can justify charging so much to renounce? Because they want to paint the picture that we’re all fat cats!
This comment: “FATCA may be the last straw for many expats considering whether to give back their passports and become tax resident elsewhere.” , gives the wrong impression that it’s an either/or situation to which country a US citizen would pay tax to, when in fact, most US emigrants are paying tax where they reside and are often double tax by the US on their incomes. Perhaps it should be written “solely elsewhere”?