To Be Or Not To Be… An American
Recently, Yahoo Finance reported that the number of Americans giving up their passports, and their citizenship, has increased by a factor of six in the second quarter of this year compared to last year.
The actual number of people isnâ€™t that high, just 1,810. The scary part is how much of a jump that is. The 1,810 people are for the first six months of this year, vs. 235 for the entire year of 2008.
Why are so many Americans suddenly giving up their citizenship? Economics, pure and simple.
Out of all the nations in the Organization for Economic Cooperation and Development, the US is the only one that taxes citizens no matter where they live. The US is also actively searching for tax cheats in offshore banking centers â€“ including Switzerland â€“ as a measure for addressing the budget deficit. There are over 6 million Americans living abroad, and because of the upcoming changes to the Foreign Account Tax Compliance Act, they are contemplating giving up their citizenship.
“With the looming deadline for Fatca, more and more U.S. citizens are becoming aware that they have U.S. tax reporting obligations,” said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich. “Once aware, they decide to renounce their U.S. citizenship.”
To simplify a really complex law, Fatca requires foreign banks to report to the IRS about accounts, and in some instances, withhold up to 30 percent of payments to the accounts of Americans living abroad if they donâ€™t disclose enough information.
The law was passed in 2010, but has been delayed twice already because of the problems with enforcement in foreign countries. Many of those other nations have privacy laws forbidding them from giving out such information, and this creates a roadblock to enforcement. But those foreign banks are folding, one by one. UBS, Switzerlandâ€™s largest bank, paid a $780 million penalty in 2009 after a tax dispute with the US started by whistleblower Bradley Birkenfeld. Birkenfeld is serving a 40-month sentence in a US prison for exposing information about his American clients at the Geneva Branch of UBS AG.
Besides the reporting problems for banks, and the really invasive tax forms Americans abroad have to fill out, the new paperwork that foreign companies are required to fill out when they hire Americans will cost the company about $5,000 per employee, according to Ledvinia. Even worse, all these new regulations are making it nearly impossible to get a mortgage or life insurance while living abroad.
“With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad,” the tax lawyer said. “Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad.”
I guess the question becomes, what is your citizenship worth to you?
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