Americans are renouncing their citizenship in record numbers recently because they seek a tax break. The Wall Street Journal is reporting that a record number of citizens want relief from the massive amounts of paperwork required by U.S. tax law. The 1,130 citizens that renounced their U.S. citizenship in the second fiscal quarter of 2013 surpassed the total amount from the previous year.
Hong Kong-based immigration lawyer Eugene Chow explained it to WSJ in simpler terms. “When I became an immigration lawyer 30 years ago, people were really excited about going to America.” he said. “Now my clients are people thinking of alternatives.” Americans are renouncing their citizenship because of a 2010 tax law called the Foreign Account Tax Compliance Act, or FACTA.
FACTA requires that foreign financial institutions to disclose more information about Americans’ investments and accounts to the IRS . The law was implemented to catch tax cheats who prefer offshore accounts to hide cash. The IRS can’t tell a bank the exact information to turn over. But they will be able to impose a 30% withholding tax on payments from the United States to foreign financial institutions, Business Insider reports.
On top of the IRS reporting requirements, U.S. expatriates are having other difficulties as well. FACTA has made opening checking accounts or obtaining credit cards a hassle now. Another factor that has Americans renouncing U.S. citizenship is the upcoming increase in capital gains taxes. This will allow Americans living abroad a larger tax break than they would normally receive.
Wealthy families who have not resided in the U.S. but have citizenship here have found a solution. They have set up what are called “foreign grantor trusts.” A non-U.S. citizen is listed as the head of the account, and they deposit assets in a trust for the benefit of those who do have U.S. citizenship. This type of account is not subject to U.S. taxes.
