Friday, September 27, 2013

Why are Americans giving up their citizenship?

The number of Americans giving up their citizenship has rocketed this year - partly, it's thought, because of a new tax law that is frustrating many expats.
Goodbye, US passport.
That's not a concept that Americans contemplate lightly. But it's one that many of them seem to be considering - and acting on.
The number of expatriates renouncing their US citizenship surged in the second quarter of 2013, compared with the same period the year before - 1,131 cases to 189 in 2012. It's still a small proportion of the estimated six million Americans abroad, but it's a significant rise.
The list is compiled by the Federal Register and while no reasons are given, the big looming factor seems to be tax.
A new law called the Foreign Accounts Tax Compliance Act (Fatca) will, from 1 July next year, require all financial institutions around the world to report directly to the US Internal Revenue Service (IRS) all the assets and incomes of any US citizens with $50,000 (£31,000) on their books. The US could withhold 30% of dividends and interest payments due to the banks that don't comply.

Are you an ex?

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It's an attempt by the US authorities to recover an estimated $100bn a year in unpaid taxes on US citizens' assets overseas. Unlike other countries, Americans are taxed not only as residents of the US but also as citizens, wherever they live.
Suddenly, some expats are waking up in a cold sweat. They have always had to file tax returns and disclose foreign accounts on a form called the FBAR, although in practice many didn't. But now Fatca means they have to be more rigorous or face huge fines, in the knowledge that the US authorities could know a lot more than they have in the past.
Many would say the IRS is only trying to get what it is owed, but critics say that in trying to track down the wealthy tax-dodgers, ordinary people are being dragged into an expensive and time-consuming form-filling nightmare. And for some, it's become too much.

Bridget, who asked the BBC not to use her real name, gave up her US citizenship in 2011, 32 years after leaving for a new life in Scandinavia.
"This has nothing to do with avoiding taxes. I was never in danger of having to pay taxes in the US since I pay more here. The issue for me was that it was becoming harder and harder to follow the tax code and comply. It was difficult already but when I knew Fatca was coming, I thought, 'Do I want to go through with it anymore?'"
She felt threatened even if she did everything to fulfil her responsibilities, she says. A simple loyalty card at the local grocery store caused her anxiety when she realised it was linked to a bank account she never knew she had.
It became so complicated to do her tax return that she turned to professionals, at an annual cost of nearly $2,000 (£1,250), with the prospect of Fatca raising the price to $5,000. Also, fewer tax lawyers were taking on American clients, she says, and some banks were even turning away American money.
"In the end, I sleep better now knowing that I no longer have to worry about the US requirements. I will never be able to live or own property in the US but I can visit and that's enough for me."

Notable ex-Americans

  • Novelist Henry James
  • Director Terry Gilliam
  • Violinist Yehudi Menuhin
  • Facebook co-founder Eduardo Saverin
  • Socialite Denise Rich
Bridget, who runs an editing and translation company, says her strong emotional bond with the US has been frayed.
"I've enjoyed being an American even though I haven't lived there since I was young. I identified with America so I felt angry that I had to get to this point where it wasn't viable to keep my citizenship anymore.
"When you're an American living in America, it's one thing but when you live abroad in another country, in certain ways that feeling becomes even stronger because you realise that things that you think are individual characteristics are actually national ones so you identify even more strongly with your nationality.
"I used to always introduce myself as American but not now, although I will always be American in my heart even though I won't carry the passport. I will still celebrate Thanksgiving and 4 July."
She says the tax issue is the biggest topic of conversation among the expat Americans she knows. And tax lawyers in the US who deal with people living abroad say it has become a huge issue.

http://www.bbc.co.uk/news/magazine-24135021
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