While “buying” citizenship does indeed require one to have millions, it might come as a surprise that renouncing a citizenship and giving up the associated rights may also come at a steep price. This is true of US citizenship, renouncing which can be quite expensive thanks to huge exit taxes and increased renunciation fees.
New tax regulations in the US have made things more complicated for the close to eight million American expats living abroad, who are required to undergo the arduous process of filing US tax returns every year. As a result, about 3,000 American expats decided to give up their citizenships last year, but even that did not come easy due to the increased costs associated with renunciation of US citizenship.
The US government has recently increased the renunciation fee, more than quadrupling it to $ 2,350. In addition, an exit tax is also levied on some individuals, the cost of which can at times run into millions of dollars. The tax bills can apparently continue for decades after renunciation.
“This is what really boggles everybody – you are going to go into the US embassy, you are going to swear an oath of renunciation, you are going to hand over your passport, and yet in some cases, you will never be free from a tax perspective. At the same time, you have given up all your legal rights as a citizen,” says Chris McLemore, a senior counsel in the US.
The cost is more for higher income groups, with those who possess assets worth $2 million or more having to pay tax at the present market value of their belongings. Stocks, jewelry, salary income, savings, houses, artwork etc. are all counted as assets on which tax has to be paid upon renunciation. This immediate tax is the main price you pay for your way out of the US citizenship. And while this alone can be quite hefty, sometimes people require a professional accountant to sort this out, which further adds to their cost.
Even investments in pension and retirement funds are liable for taxation upon citizenship renunciation. These funds can be taxed on their full value, even though they are yet to be paid out in the years to come. In addition, exit taxes are also slapped on assets after the death of the owner, in case they are inherited back by people who are US citizens.
The taxes and other associated costs of renouncing a citizenship can possibly be too high to make it worthwhile, and as such one needs to carefully evaluate whether renunciation may cost more than retaining the citizenship, and accordingly arrive at a decision.
Source: fox59.comGeneral Information: Contact us to receive more information about this article.
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