Is taxation in the US the reason behind the increase in citizenship renunciation?
Citizen Renunciation is the voluntary act of relinquishing one’s citizenship or nationality. It is a complex process that involves giving up all your rights associated with being an American citizen. For example, the right to vote, the right to visit or work in the United States, eligibility for military pensions, potential support from the US government in an emergency, and more. There are expats tax consultants in Toronto who can guide through the technicality here.
A common myth about renunciation is that it means you will be free from the clutches of the American tax regime. That is surely not the case and the process is not that easy as it sounds. If you have income from the country even then you need to file tax returns. Let’s say, for example, you have US-sourced income, from a rental property, you still need to file a tax return. This is irrespective of the fact that you are not a US citizen anymore.
In addition to this, the process of renunciation can get uglier than before too. In fact, no longer holding a US passport can create new tax liabilities for you as a person. These new expenses most probably include an exit tax for “covered expats” and an increase in inheritance and the nature of gift taxes.
What It Needs To Be Called An Expat
You are considered a covered expat if you fit into one or more of the following categories:
- Your average annual US income tax liability over the last five years is greater than $ 168,000 (2019).
- Your net worth is equal to or greater than $ 2 million at the time of renunciation.
- You have not been tax compliant for the last five years.
However, apart from this, there are exceptions as well with regards to the above definition which is listed below:
- Dual citizens by birth who are still a citizen and tax-resident of the other country and who have not been a United State resident for more than 10 of the last 15 years.
- Minors who expatriated before they are 18 ½ years old and who has not been a United State resident for more than 10 of the last 15 years.
The consequences of noncompliance at any stage of the process are extremely severe. As stated above, the increase in U.S renunciation is majorly fuelled by the not so graceful taxation system and its policies. Having legal expertise or international tax consultancy service in Toronto to help you see through this clearly is simply unavoidable. However, this does not imply that taxation is the sole reason behind the increase in citizen renunciation. Obviously, there are other reasons as well but the aspect of taxation is surely a disturbing one.
