Recently published data for the 2015 third quarter showed that that number of people who renounced their U.S citizenship or terminated long-term U.S. residency reached an all-time high. The three month number was 1,426, which surpasses the previous record of 1,335, which came during the first three months of 2015.
Perhaps what is most interesting about this trend is that this record comes despite recent disincentives imposed by the US Government making it even more expensive for people to turn in their US passports. America charges a fee of $2,350 which people must pay to turn in their passports. $2,350 is not only the highest fee in the world, but it is more than 20 times greater than the average fee in other high-income countries. The USA has recently tightened up its enforcement of its Global income tax compliance, which has severely impacted US citizens living abroad. For people living and working in foreign countries, they must report and pay tax where they live, but also continue to file taxes in the U.S. And their US reporting is based on their worldwide income, regardless of the tax they pay in the country they actually live in. While there is some relief in the form of a foreign tax credit, it generally doesn’t come close to eliminating this steep “Double Taxation“. While these rules have long been in effect, its the recent tightening of enforcement that has triggered the wave of US persons deciding to renounce citizenship. Not only has the USA ramped up its civil and criminal penalties from annual foreign bank account reports known as FBARs, but Foreign Banks themselves are increasingly worried about keeping the IRS happy.
In addition to the passport exit fee, to renounce US citizenship you must prove 5 years of IRS tax compliance, and if you have a net worth greater than $2million or have average annual income tax for the 5 previous years of $160,000 or more, you must pay an additional “exit tax”. While the total number of persons exiting in the third quarter of 1,426 seems small, it will be interesting to see if this trend continues at an accelerating pace, and if any of the Presidential Candidates plan on making any changes to the global tax formula.