If you are a US citizen living outside the United States, you still have yearly IRS tax filing obligations. These tax-filing obligations can be an expensive annual hassle (even if you owe no tax). They may even result in double taxation. Fortunately, properly renouncing your US citizenship can provide a way out.
When analyzing whether or not you should renounce to your US citizenship, you should consider the below factors:
CONS:
1. Protection of U.S. Citizens Abroad
Protection abroad may be an issue for U.S. citizens who find themselves in politically unstable parts of the world. Generally, for U.S. citizens living in the UK/EU this is not a determinative factor when considering retaining one’s U.S. citizenship.
2. Consular Services Offered to U.S. Citizens Abroad
Consular services are available to U.S. citizens living abroad and include assistance in situations of detainment by foreign governments, passport issues, and cross-border legal affairs.
3. The Right to Vote in U.S. Elections
Many individuals holding U.S. citizenship are very proud and patriotic when it comes to being American. With U.S. citizenship comes a constitutionally-granted privilege to participate in U.S. elections. Renouncing one’s citizenship eliminates this privilege.
4. Access to the U.S. Job Market
Depending on a client’s situation, this may be a factor to consider when renouncing one’s U.S. citizenship, especially for younger individuals. U.S. citizens are legally able to work anywhere in the United States and giving up citizenship closes off the U.S. market as an available source of employment without going through the proper immigration channels to obtain the correct visas and work permits.
5. Travel to the United States U.S. citizens are able to travel to the United States at their leisure.
PROS:
1. U.S. Tax Filing Obligations
Once you have renounced your U.S. citizenship, you will be issued a Certificate of Loss of Nationality (“COLN”) effective on the date you appeared at a U.S. Embassy or Consulate General, took the oath of renunciation, and completed the exit interview.
A timely-filed tax return is still due for the year in which you renounced. It is a partial year return which will reflect from January 1 to the date the COLN was issued (exit interview date). Once you have been issued a COLN, and filed your final year return, you will generally no longer have U.S. reporting and filing obligations thereafter.
2. U.S. Estate and Gift Tax Exposure
U.S. citizens and residents are subject to estate tax on their worldwide assets and are afforded the full unified credit available. Assuming an individual who successfully renounces his or her U.S. citizenship is not considered a U.S. resident for estate and gift tax purposes (domicile test), he or she he or she will be subject to U.S. estate and gift tax only on “U.S. situs” property rather than his or her worldwide assets.
Renouncing your US citizenship is a very personal decision. If you have made a permanent home outside of the US and find the benefits of maintaining US citizenship no longer outweigh the costs, you should think about renouncing your US citizenship. The process of renouncing one’s US citizenship is complex and can seem overwhelming. If not done correctly, the consequences can include the imposition of the US Exit Tax, a permanent ban on entering the US and burdening your heirs with the US inheritance tax in life and at your death.
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W Legal Desk, Advocats professional TEAM