Nobody likes taxes (other than the taxman), but some people hate them to the point of renouncing their citizenship. In a recent poll by the global financial consultancy deVere Group, two-thirds of Americans living abroad said they’ve toyed with the idea of giving up their U.S. citizenship in response to the Foreign Account Tax Compliance Act (Fatca).
Fatca, which aims to fight against tax evasion, is scheduled to be implemented starting July 1, 2014. The measure originally was supposed to take effect in 2013, but was twice pushed back to give foreign countries time to conform with its mandates. Fatca will result in additional reporting requirements for all U.S. citizens overseas and is expected to increase compliance obligations for all non-U.S. financial institutions worldwide. Critics of Fatca contend it’s a pain-in-the-butt regulation that won’t do much to hinder tax evasion.
DeVere asked 414 of its American expat clients the following question: “Would you consider voluntarily relinquishing your U.S. citizenship due to the impact of Fatca?” Turns out 68% indicated they had “actively considered it,” “are thinking about it,” or “have explored the options of it.” Among the remaining respondents, 17% said they wouldn’t consider giving up their passport and 15% said they didn’t know.
“Fatca is a huge imposition on ordinary Americans who happen to live and/or work outside the U.S. and will involve significantly more expensive and laborious reporting requirements,” deVere Group’s founder and chief executive, Nigel Green, said in a press release. “In addition, due to the onerous and costly impact of Fatca, many non-U.S. financial institutions will no longer work with Americans––even if they have been clients for decades––which can make life outside the U.S. challenging to say the least.”
Giving up one’s citizenship isn’t an easy decision to make from emotional, financial or legal perspectives. “Unsurprisingly, most Americans, in our experience, find the prospect of giving up their U.S. citizenship extremely emotional,” Green said. “It is something they are loath to do and it is considered a last resort move.”
Thus, Green noted, it’s vital to consider all of the available planning options that can be used to potentially mitigate some of the adverse effects of Fatca. “This is especially important as there are certain established federal regulations aimed at discouraging Americans from renouncing their citizenship for tax reasons,” he said. “These complex rules can include hefty exit taxes and/or gift taxes, although there are many exceptions that can be applied.”