When I mentioned in a recent article that I had no intention of moving back the United States, one reader asked if I had given up my U.S. citizenship. She then asked about the pros and cons of relinquishing one’s U.S. citizenship. I decided to answer her questions in an article.
Although the vast majority of the 8 million Americans living abroad choose to retain their U.S. citizenship, there are a small number each year that legally relinquish it forever. In 2016, that number was only 5,411.
The question then becomes: why would anyone voluntary give up their U.S. citizenship? Well, the reasons vary depending on the individual, but for many people it comes down to dollars and cents.
TIP: This article has several hyperlinks to other resources. They’ll be highlighted in blue.
In case you were unaware, the U.S. is only one of two countries that tax people based solely on citizenship, regardless of whether or not they reside in the country. The other nation that does this is Eritrea, located in Africa.
At first glance, that tax policy might not sound unusual, but here’s a real-life example to put it in perspective:
Boris Johnson was born in New York to British parents in 1964. At the age of 5, he moved with his parents back to the United Kingdom and has spent the rest of his adult life there. He has had a successful career in politics and is currently the Secretary of State for Foreign and Commonwealth Affairs for the United Kingdom.
Although he left the U.S. when he was 5, he’s still required to pay taxes to the U.S. government. After selling a home in England, he received a tax bill from the IRS for their share of the capital gains. This bill came 40 years after he left the U.S. Boris Johnson later renounced his U.S. citizenship.
In 2010, the United States enacted a piece of legislation called the Foreign Account Tax Compliance Act (FATCA). The law requires U.S. citizens with foreign financial accounts to file a report in certain circumstances. The law provides severe civil and criminal penalties for non-compliance.
Many citizens who haven’t lived in the United States for decades, like Boris Johnson, can now find themselves in trouble with the IRS for failure to comply with the law.
The U.S. tax policy, coupled with the FATCA requirements and penalties, has motivated more than a few Americans to sever their ties with Uncle Sam.
Things to Consider
Although some people may be enticed by the financial advantages of renouncing their U.S. citizenship, it’s wise to consider the following before doing it:
Irrevocable and permanent
Except as provided in Section 351 of the Immigration and Nationality Act, this is a permanent decision that cannot simply be undone if you change your mind a couple of years down the road.
You won’t be authorized to live or work in the U.S.
This is something to consider if you’re working for a U.S. company abroad.
Fees and exit taxes
The fee to renounce has been increased to $2,350. You may also have to pay an expatriation tax on your worldwide assets.
Loss of military and government pensions
For those folks living on a government pension, this should be enough to dissuade them from renouncing.
You’ll need another citizenship
It is not recommended to give up your U.S. citizenship if you’re not already a citizen of another country. A citizen is different from a legal resident, so don’t confuse the two.
People without citizenship to any country are called stateless. Stateless people aren’t entitled to the protection of any country and it’s difficult for them to travel.
You may have difficulty returning, even to visit
Depending where you obtain your new citizenship, you may be required to apply for a visa at a U.S. consulate office before traveling. That application for the visa costs around $160 and there’s no guarantee that it will be granted.
That was the case with Roger Ver, a wealthy investor who renounced his U.S. citizenship in 2014. Roger became a citizen of St. Kitts and then applied for a non-resident visa to attend a conference in Miami. The visa was denied.
If you want to avoid applying for a visa every time you want to visit the States, you can always try to get citizenship in a country that is part of the Visa Waiver Program. Passport holders from these countries can come to the U.S. as a tourist for a period of 90 days without requesting a visa at the U.S. consulate. By the way, Mexico isn’t on the list.
Let’s Wrap This Up
The decision to renounce one’s citizenship is not one to be taken lightly. In our case, we would never even consider doing it. Although we love living in Mexico, we’re still proud to be American citizens. I think that we’ve found the best of both worlds.