I suspect that the U.S. taxing its citizens abroad has a lot to do with it being the world's richest country and not wanting people (billionaires and such particularly) to be able to easily escape their tax burden by moving abroad.
Because the US passport is opening the whole world to its bearers, the protection US gives its citizens abroad is outstanding, and if some bad guys try to cut your head for ransom - chances of being saved or avenged are substantial.
I have dual US-NZ citizenship and I can think of no circumstance where if I was in trouble I would either: tell anyone that I was an American, or try and call the US Govt for help.
They do use many US public services, though. American expats can still collect Social Security, still get to vote, still have their passport honored and renewed, are able to take advantage of US consular services, etc. They may use these services less, and certainly use a different mix than the average American living in the US, but it's not nothing.
Voting is not a service but a right and you'll have to pay for your passport renewal anyways [1]. What consular services did you have in mind that would justify this cost ?
- Social Security is collected on what I paid into the system while I was living/working in the US. Not a part of this
- Voting is a right - nothing to do with taxes
- My "consular services"? My passport renewed? I cost me $100 or something like that to get my passport renewed, and most of us never go anywhere near our "consular services" - I'm not even sure what they offer, except to business people over here via the Amer. Chamber of Commerce (which they pay an arm & a leg to join)
> - Social Security is collected on what I paid into the system while I was living/working in the US. Not a part of this
Wrong.
Your Social Security benefits are proportional to what you put in (usually), but you will receive more money than you put in and more money than you money earned over that time period, assuming a normal life expectancy.
The trope that you only get what you put in with SS and Medicare is false.
I'm an expat living in Vietnam, and all consular services cost money upfront. Collecting social security is collecting on the SS taxes you already paid, so it doesn't have anything to do with anything.
Trust me, it is as close to nothing as nothing gets.
- defense, which benefits you globally via Pax Americana, free trade routes etc. and should you require it, "Captain Phillips" style rescue.
- "socialism", in the form of benefits that everybody has to pay for and that you can receive if you trigger certain situations (retirement, unemployment, etc.). Most expatriated Americans probably already benefitted from free education which is included here.
- "generally making the country locally better" (justice, environment, etc.).
Of these, only the latter doesn't directly impact Americans abroad. The first benefits you wherever you are; foreign citizen somewhat benefit from Pax Americana but there is no guarantee it will continue, whilst US citizen are covered globally with much more certainty. The second is a form of compulsory insurance for life developments that will probably coincide with repatriation. But that's about 7% of the budget (rough back of the envelope).
The question is why don't other countries tax their citizen abroad? I think it is mainly because they can't afford to enforce it (good luck, Estonia, forcing JP Morgan to give you access to their New York client data). If they could, with any degree of certainty, they would in a heartbeat. France proposes to do it every 6 months.
>foreign citizen somewhat benefit from Pax Americana but there is no guarantee it will continue, whilst US citizen are covered globally with much more certainty
Tell that to the lybian, syrian, iraki, Salvadoran, etc... that have "benefited" from the "Pax" Americana
The question is why don't other countries tax their citizen abroad?
I assumed that the general consensus was that it all balances out at the end of the day – countries don't tax their citizens abroad, but do tax noncitizen residents who have income in the country. Either approach isn't all that bad, but it's interesting to think about how it can realistically be handled where individuals can hold multiple citizenships. My partner is dual US/UK, and completing a US tax return when you haven't lived in the country in decades is expensive and time-consuming.
- defense, which benefits you globally via Pax Americana,
This is, to put it mildly, a controversial claim.
- Most expatriated Americans probably already benefitted from free education which is included here.
When I point out the insanity of the law that denies free choice of public schools, its defenders usually try to justify it by saying schools are funded by local property tax rather than national income tax. Is this not the case?
Pax Americana started in WWII (which killed over 55 million people) and since then, there has been no global conflict of a similar scale. Cf http://www.scaruffi.com/politics/massacre.html (top result in DDG).
Whether you consider that global relatively free trade is not beneficial to the rest of the world is up to you, but as a citizen of the rest of the world who did benefit I'm quite glad the US did not go isolationist after WWII.
Regarding schools, whether the taxpayer's money is used appropriately is another discussion, irrelevant here since Americans, through their elected representatives, chose to spent the money in this way.
Funding-wise, last year's budget spent $100bn and this year wants $117bn on the Federal end for "Education, Training, Employment and Social Services" (see link above) of which $69bn in 2015 is for Education (see: http://www.ed.gov/news/press-releases/obama-administration-2...).
There's probably a legitimate point to be made that countries typically spend a large amount of money during an individual's formative years that they don't pay back until they've spent a significant length of time working, so they have in essence pre-used a lot of those services.
I wouldn't personally advocate that stance - I think it's problematic with respect to consent - but I can see that in the case of extremely high emigration rate the viewpoint might be very tempting.
Simply moving abroad wouldn't let you escape paying tax in US, if you made money in the US. I make money in two EU countries, and pay income tax from the profits made in each country into that country tax system. It would be idiotic if I had to pay income tax off income in country A in country B if I actually haven't earned that money in country B. Yet this is exactly what US is doing.
> I suspect that the U.S. taxing its citizens abroad has a lot to do with it being the world's richest country and not wanting people (billionaires and such particularly) to be able to easily escape their tax burden by moving abroad.
Interestingly, the US relatively high tax compliance rates, compared to other large/industrialized countries [0]. Presuambly the wealth you refer to is what results in the absolute dollar amount of evasion being higher, despite the relatively low rate of evasion.
The US is the worlds #19th richest country as far as GDP (per capita) which makes the most sense as a measure of individuals and taxes.
I don't think it makes any sense given that lower GDP nations should be doing the same thing to extract money from the US economy on any of their citizens who make more than ~$20K (if their GDP were $14K) based on the same "logic".
When The US is happily paying fairly for its brain drain, it can complain. But either way as an expat I actively boycott US services and financial relationships for my own protection.
The government's actual "solution" to this problem has been to raise the fee of renouncing citizenship, from $450 to $2,350. No problem for wealthy people who want to avoid tax, but quite a large burden on everyone else.
I plan to become a German citizen eventually, because I'm probably going to retire here. But thanks to Germany's disallowance of naturalized dual citizenship and America's tax complexities, that requires weighing a huge number of problems. At least my German bank (DKB) didn't kick me out.
There's also an expatriation tax if your net worth is greater than a certain amount ($2,000,000) or you've averaged over a certain tax liability for the last five years ($139,000). The tax also applies to pensions, stocks, etc. based on their market value on the day you renounce.
I keep seeing people repeat this, yet I can't find any information to confirm it. you can become a German citizen and still retain your US citizenship, from everything I've read and everyone I've asked on the matter.
If renouncing is not allowed by the other country (i.e. Brazil), or if the renunciation is too expensive or difficult. I.e. you wouldn't want to go to Mogadishu to renounce your Somali nationality.
What have you read and who did you ask? The general rule [0][1] is that you cannot keep your existing citizenship, with certain exceptions to that rule specified by law [2]. I don't see any that apply to the US, though, most of them deal with situations where you want to, but for various reasons can't, give up your previous citizenship. It's possible that there's a separate treaty with the US (as permitted in § 12 (3)), but I couldn't find any.
It's probably similar to how most EU countries work - you can have two citizenships,but both of those countries will only recognize their citizenship. So for example - if you had a dual Polish/British citizenship, Poland would only recognize your Polish citizenship. As long as you are in Poland, you are a Polish citizen in the eyes of the law, and you would not be officially treated as a foreigner, or even recignized as one. You could go to the British embassy, but they would be unable to help in regards to Polish law, because Polish law would not recognize your British citizenship. The same works in reverse, if you were in Britain, only your British citizenship would be recognized. However, if you traveled to any other country, you get to pick which citizenship you want to use for official purposes.
No. In Germany we had a big debate about doppelte staatsbügerschaft at the beginning of the millenium. It was already a big undertaking to enable that at all, for children born here from parent with foreign citizenship. It does not go further than this, in general if you want to be german, you are german and nothing else. There are some exceptions as listed above, but they should not apply here.
To expand on what everyone else has already said, most people holding American/German dual citizenship have a German parent.
There are a few other rare exceptions. But it is completely impossible under the standard naturalization process, which requires you to renounce any previous citizenship.
It's not just Germany either. Norway doesn't allow dual citizenship unless the other country doesn't allow you to renounce your citizenship, doing so would require you to put yourself in danger, or if the fee is high enough to be considered unduly burdensome - more than 4% of your general income.
Related rules have also made holding US accounts more difficult for Americans overseas. I had my retirement accounts frozen by their previous custodian: "Sorry, our regulator doesn't let us deal with Americans overseas." I'm unsure whether that was sincerely "doesn't let us" or meant "would require a paperwork burden we find unacceptable relative to the money you few guys make us" but either way I was given thirty days to move very-much-on-the-books money to another US financial firm.
It's annoying as heck, particularly as the burden falls mostly on folks who are coloring squarely within the lines. I pay enough for an accountant that I know with $10k of financial engineering the problem goes away for forever, which makes me think the guys with $30 million in untaxed capital gains that they're really worried about are probably not getting meaningfully inconvenienced by this policy.
> with $10k of financial engineering the problem goes away for forever
As an American this upsets me greatly to hear. I feel it makes living abroad, especially to families of average means in this country, almost an impossible feat.
I also wonder if only leaving the country for short duration vacation/business contributes to the "We're the best country ever!" mentality here and the "Wow, look at those weirdos over in America" mentality abroad. Or maybe that's just me paying too much attention to the news lately.
FWIW: this is clearly not the case. It's just a paperwork burden with occasional inconveniences, some bigger than others. Millions of Americans, most of whom have more modest means than the typical software engineer on HN, make it work.
Agreed. People make more of a deal about this than it is. If you are actually doing business overseas or own an actual operating business corporation overseas employing people (depending on the country), US paperwork looks relatively benign.
The real harm for business people overseas is that opportunities may be closed for you to invest in other businesses or to join a board or something because your status as a US Person causes a burden for others. At the 100 million dollar level I imagine this is not a big deal but at the startup and smaller growth company level it seems problematic. This reduces the opportunity for soft diplomacy and representing the brand of America to foreign people of means and substance.
I would be curious to know if you have experienced or anticipate experiencing this. Perhaps where you are is more closed to foreigners but there are countries where foreigners do lots of business. Have you been invited to invest or participate in boards?
If you're "of average means", then you can simply color within the lines, do exactly what the law tells you to do, and almost certainly have no problems at all. You only need the $10k to successfully cheat.
I think I've posted this before, but contributing to the thread...
Doing my US taxes takes about 3 hours, as it's basically updating the previous year's forms to reflect whatever changes have been made and adjusting for salary and exchange rate. As I live in a country with higher taxes than the US, I don't pay anything. US-ians living abroad will become familiar with form 1116 and 2555...
Yeah, FATCA introduces additional paperwork (or web-work at the moment). But, I have to fill out similar paperwork for my current country to account for my US-resident accounts. So I guess both countries wish the other would just go away?
Figuring out "exactly what the law tells you to do" is the tricky part. The law merely prescribes the step-by-step instructions for each form. It will not explain the emergent behavior that you'll need to know to optimize your way through the system. It will not advise you ahead of time to do things like spend no more than 30 days in the US to qualify as a foreign resident. You wouldn't even know that's a relevant question to ask unless informed by a suitable expert.
This sort of thing is the financial engineering that patio11 is talking about. It's not cheating, it's doing what the system is meant to let you do, if only you understood the best paths through the system.
I have a similar situation on a smaller scale. I live in one US state and work in another. I file income tax for both, and there's a form that takes my tax liability to my state of work and backs it out of my liability to my state of residence. I wouldn't have known that form existed and would have just assumed I had to pay full tax to both states, if not for TurboTax directing me to that form.
The law will direct you how to mechanically comply, but it won't direct you against complying in ways hurtful to yourself.
I think you've hit on the truly annoying part of the whole thing. I'm lucky enough that here in Iceland, it's caused me no problems at all.
I'm generally in favor of trying to crack down on tax avoidance, and I'm sympathetic to the cause they're trying to advance here. The "spirit" of the tax law is basically "you gotta pay someone their fair share", but everyone knows that $100,000,000 means you don't have to comply with the spirit of this law any more than you did the one before or the one before that.
Only two countries tax non-resident citizens on foreign-earned income: the United States and Eritrea. I'm assuming this is what you meant (non-resident foreign income).
"Unfortunately, no single member of Congress represents these American constituents who together would rank, if a state, 12th in population size after New Jersey and before Virginia. By virtue of living abroad, they are second-class citizens, paying onerous tax burdens without representation."
Compare this to Switzerland that considers its citizens living abroad part of the "fifth Switzerland" (there are 4 official language regions in Switzerland). They can vote online (in some Kantons/States) and participate in government programs to keep in touch with or learn about their roots. All without taxation.
Of course, people here complain about citizens living abroad voting in local elections... Representation without taxation!
I don't agree with what that quote is saying. Americans living abroad can still vote, and therefore are still represented. It's true that Americans living abroad don't all have the same representatives, since they're represented by the elected officials from where they're registered to vote in the US, but that's a far different thing from saying that they have no representation at all.
You have at least some which on paper are supposed to represent you and your region. Expats don't, and that was the point made in the article.
The general issue of indirect democracy not representing the will of the voters is a fundamental one and not solvable, also goes to far for a discussion like this. Side remark: JFKs Profiles in Courage is a great book on the topic.
Yes, that was the point made in the article, and it's the point I disagree with. My members of Congress represented me just as much when I lived abroad as they do now. Expats absolutely do have elected officials who are supposed to represent them.
> Expats absolutely do have elected officials who are supposed to represent them.
You yourself stated above that they don't?
I got your argumentation as "I never was represented anyway, so not being represented as expat did change nothing". But the difference is that the other americans have representatives that are supposed to act in their interests. Expats have only the afterthought of being american and that one could think about them sometimes, since they vote.
Who are the elected officials who are supposed to represent them? I do not think that there is one, that is not how your system works.
No, my argument is that expats have representation, because they vote for members of Congress. As an aside, I remarked at how that representation doesn't do a whole lot for any American, living abroad or not.
The elected officials who represent a given expat are those from the district where the expat is registered to vote. For example, when I lived in France, I was still registered to vote in Wisconsin, so I voted for Wisconsin Congressmen, and they are who I would contact if I felt like wasting my time by making my opinion known to legislators.
The article is trying to say that because expats don't have any representatives exclusively for them that they do not have representation at all. I find this to be absurd. Yes, small interest groups have trouble getting action in the legislature, but that's hardly unique to expats, and nobody says that e.g. janitors pay taxes without representation just because there's no Janitor Congressman.
You seem to be agreeing with the quote. Note it doesn't say no one represents them. It says no single member. Influence spread across all members isn't really going to get much work done for them as if they had their own specific to their problems who considered it their job to represent them and talk about them, etc..
I agree with the first part and disagree with the second part. I agree that no single member of Congress represents these people. (Hard to disagree, since that's just a simple objective fact.) I disagree that this somehow equates to "without representation."
We can do this for any issue which is not related to state/district borders. No single member of Congress represents urban Americans, or rural Americans, or WoW players, or hair stylists. Would we say that they pay taxes without representation? Of course not. Why are expats any different?
I lived abroad for several years and I never felt like I was without representation. I voted and had elected officials the same as my fellow Americans. The degree to which I'm represented in Congress (i.e. nobody is really answerable to me, but I can write to them and get a form letter back if I feel like wasting some time, and once every couple of years I get to pretend like my vote matters) was no different at that time than it is now.
"No single member of Congress represents urban Americans, or rural Americans"
Clearly you are unfamiliar with the level of gerrymandering we have implemented, which makes it feel unfair when a distinct property owning group (say, retirees in Costa Rica) don't have their own gerrymandered pet politician just like the yuppies or inner city poor or rednecks have in congress.
Unevenly enforcing a corrupt system feels worse than merely having a corrupt system.
well you can do that because you have national elections, none of those in America as even the presidential election is technically 51 simultaneous statewide elections (well 50 + D.C.)
I must be missing something. I don't understand why not having nation wide election prevent the U.S. from having congressmen to represent those living abroad.
Since we only have two parties, each one doesn't want to do anything in the odd case it would give the other one an edge they don't know about. So things stay shitty.
seats in congress are apportioned to states who then figure out how to divide them up, so while in theory a state could make an overseas district it's not something that could be done on a national level without some heavy modification to the constitution.
I never thought of that, every representative gets elected under a different rule. You could still do something like the Samoa, and get it organized by the State Department. That wouldn't fly with an actual voting power, but for consultative representation, I think that would be good enough. I guess for actual voting representation, either one State should grab them, or make a federal level election for "others" (where probably Samoa and friends, DC and other troublesome situations could be handled as well).
I'm an american living in Norway. I can vote for president, sure. Supposedly I am allowed to vote in the district I last lived in the states, but trying to get any of this done is difficult, especially since the state I live in requires proof of address for voter registration. I understand the likelihood of the representatives there to care about any issues I have is pretty minimal. After all, americans living abroad are usually a minute slice of a representative's voter base, even if we add up to quite a number overall. I can probably get more accomplished through the embassy 10 hours travel time away.
On the other hand, I can vote in local elections here in Norway simply by living legally here for 3 years:: I cannot vote in national elections until I am a citizen. I do not have to be a citizen to hold local offices either - I can be pretty active and involved if I choose. My situation comes down to having theoretical representation in the states as compared to actual representation here.
How are you voting for President without also voting in the other elections that are up at that time? Presidential elections are technically a local affair, and the ballot will have all the races.
I personally never had any trouble voting while I was living abroad. It was slightly inconvenient to track down a fellow American to witness it, as required by the absentee ballot I was issued, but no big deal.
“Supposedly I am allowed to vote in the district I last lived in the states, but trying to get any of this done is difficult, especially since the state I live in requires proof of address for voter registration.“
Makes me wonder what would happen if a significant number of expats would agree on some low-population state to remotely take over. How far could bureaucratic friction be increased to fend off that kind of "attack"?
Living near the embassy doesn't make things any easier. I live about a 5 minute walk from the US embassy in Oslo, and you have to have an appointment to do anything. The embassy is supposed to accept ballots, but for all intents and purposes only does this for presidential elections, so I still end up going to the post office.
It's incredibly frustrating how even when living overseas you have to have some sort of residential address for many things. I use my father's address for this purpose, which is useful since he lives in a state with no local income tax, reducing some of my paperwork.
Yup, came here to say the same thing. Most people who haven't lived abroad for a significant amount of time don't realize the difficulty of trying to vote. In addition to that, the effectiveness of getting your voice heard by your "representatives" (the reps from your last permanent residence in the US) is much more difficult. I used to be able to pick up my phone and get myself heard on issues that I cared about. Living abroad, the best you can hope for is to contact your rep online and hope they care enough to give you a copy-pasted response.
Unless you sleep for 16 hours a day, your waking time will overlap with office hours in Washington at some point. Skype can call to the US for very low cost.
Umm... do you even figure having a full time job into account? One that often goes into the weekends? Also, you are painting broad strokes.
1. With my time difference, I'd have to call my reps at a time when I'd normally be getting ready to sleep just to catch them in the morning.
2. In addition to that, not everyone has good internet connection. Especially if you live in a remote area. Prior to a year ago, my internet connection at home was fairly slow.
3. Yes, I'll admit that I forgot about Skype since it wasn't reliable for me in the first few years I was here. However, cost is cost. And having to manage Skype Credits, which I'd never use elsewhere, is just an extra burden compared to what it was like back in the States.
I get that it's not quite as easy as it would be from the US. But "prohibitively difficult" makes it sound like you're looking for excuses rather than solutions. It might be a little harder but it's not exactly hard. Twenty years ago you'd be paying painful long distance charges just to make that call within the US.
Yes, I'll take back the prohibitively part since I had my internet upgraded a year ago. But prior to that, it was. Can you think of a way to do so without Skype? Or a reliable internet connection? Something that would be possible to do from home since the only overlapping hours are after 9/10pm in my timezone?
And aside from that, it still does not detract from my original statement:
> the effectiveness of getting your voice heard by your "representatives" (the reps from your last permanent residence in the US) is much more difficult
It's not just the contacting. It's also getting them to even care because you don't live on US soil. None of what I'm saying is an excuse, and I don't know why you seem intent on not acknowledging that it can be legitimately difficult.
If you have a phone at all, there are cards you can buy to make cheap international calls by bouncing through a local number. If you don't have a phone, well, you're stuck, but that's hardly characteristic of being abroad, and you'd have the same trouble from a shack in the mountains in the US.
As for caring about your opinion, why would they care any less about you compared to any other voter?
Never knew about or seen the phone card before. Good thing to remember, but do they really have this in every country? But do note that with a shack in the mountains, you'd probably have normal landline access and even possibly cellular reception, so it's not a good comparison.
I said the caring part out of frustration with the current system. I've always felt that if they couldn't map you to a US address within their jurisdiction, then they'd know that you had less of an ability to influence other voters around you via petitions, grassroots campaigns, etc. So discounting your opinion wouldn't matter as much.
I've seen those cards in lots of places, but I'll admit it's far from a complete survey. People love to call home, and there are expats almost everywhere, so I'd expect they'd be available just about everywhere.
As for petitions and such, I imagine that would be much less of a factor now with the rise of social networks and such. But the views of our elected officials may take some time to catch up to that.
There's actually a more direct case of this: Washington, DC. Yes, people who live in the capital of the United States have no representation in congress. For years, they've even advertised this:
You can vote for president, but you have no voting congressman.
Cultural tidbit: If you're a resident of the D.C. area, and you live in Southern Maryland or Northern Virginia, be careful not to call yourself a Washingtonian. Residents will kinda frown at that. There's a perception that sometimes residents from the neighboring states will make it seem (unintentionally or not) that they're part of the city itself, without paying the cost of being an actual resident: No representation.
Consider that as you will. I always thought it was yet another little quirk of what is a pretty unique city.
Nitpick: capital, not capitol. If somebody lived in the capitol they wouldn't have representation either, and that would be even more ironic, but I don't think anybody does.
Wacky question: does the President count as a DC resident and is therefore bereft of Congressional representation, or does he technically remain a resident of wherever he came from and get to vote for those members of Congress?
I really love those DC license plates. What I especially love is how Congress still has the final authority over all government matters in DC, so this is quite a snub by the local officials at their Congressional masters.
I'm an expat, and the quoted statement is nonsense. I'm eligible to vote in the US with an absentee ballot, and I have a congressional district based on my last address in the US. Certainly my representative doesn't particularly care, because there aren't that many of us living abroad, but to say I'm therefore without representation is no different than saying I'm without representation as an Atheist (my voting district is in the deep south).
My guess is that the author was trying to say that we (I'm an expat as well, Germany) probably aren't a core constituency as some of our brethren at home might be.
Nonetheless, I still agree that it's incorrect, and strangely enough, I thought the author's own mention of the bipartisan support of FACTA reform is evidence enough of this. Spread out among constituent states, our impact is probably insignificant. On a national (federal) level, it certainly can be. We're large enough (as he notes) to be a significant body, and we have an oversized impact compared to the rest of the population with regards to how America is perceived in the rest of the world. It's good to know they're examining the issue. I'm sure it had good intentions in the beginning, and I'm confidant they can make some improvements.
It really doesn't make sense how the US is the only country which insists on taxing their citizens, no matter where they live. It makes American labor less competitive and promotes the insularity of American culture.
I'm living abroad and you can definitely see the impact of the US tax system in the background of expats: Americans are severely underrepresented. The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed.
The specifics of the tax treaties depend on the country, but in general it works out to avoid double taxation. If you live in a part of the world where income taxes are generally at higher rates than the US, such as most first-world countries, you get a dollar-for-dollar tax credit against your US taxes for foreign taxes paid, which generally extinguishes your US liability. (There exist other options, notably the Foreign Earned Income Exemption, for folks earning below ~$100k a year.)
The folks with a trickier situation are the ones who either a) are getting subpar tax advice (really, really easy, since few accountants are qualified to talk about multinational taxation and those that are generally charge a bundle) or b) folks who live/work in a low-taxes-low-services nation but end up getting a mid-taxes-no-services bill tacked on due to their US citizenship.
Representative examples of the two regimes: I have lived and worked in Japan for the last ten years. Japanese tax rates are generally on par with or slightly above US tax rates. (There exist important qualifiers on this for practical tax planning for small businesses here.) This results in me every year shipping my accountant a lot of numbers after which he comes up with a calculation which says something like: "Taxes owed to US: $20k; taxes accrued in Japan: $22k; take Japan/US tax treaty credit; net tax owed to US $0."
On the other hand, consider a high-salary employee of a bank's Hong Kong office. The HK top tax rate is 15%. The US top tax rate is 39.6%. Uncle Sam will happily advise you that you have to pay the 24.6% difference (on your last marginal dollar, naturally).
All of the above assumes one is doing one's level best to pay the lowest tax bill consistent with the clear intent and established practice of the enforcement divisions of the laws of the United States. This, regretfully, does not describe all taxpayers.
I'm also an American expat (Iceland), and for a lot of people, there will be no difference except for inconvenience. If you make less than about $100,000 per year, you exclude that income from US taxes completely. You still have to file a 1040, but you just declare the income on one line and negate it five lines later. You send the IRS the completed form showing you owe $0 and you're done.
And if you make more than $100,000 but live in a country that isn't a tax-haven, you exclude that income too because you're only taxed on the difference between the taxes you would owe the US government and the taxes you paid in your home country. In Europe at least, you're almost always taxed at a higher rate than the US would have taxed you, so again, you don't owe anything. You're only looking at that 30% burden if you live in a country with no taxes and you make millions of dollars (because again, the first $100k is excluded).
I agree it's a bit crazy that the US taxes worldwide income, but the practical consequences seem pretty minimal. My bank has no problem with me as a customer, or at least if they do, they haven't said anything to me about it.
> there will be no difference except for inconvenience.
There also appears to be a factor of risk. I'm not American but have had Americans in my team. A slight procedural error, either by themselves or by the IRS, can be a huge financial and legal problem, and expose the person to litigation. It seems draconian and unfair to me.
Thus the practical consequences are more than minimal.
I actually talked with an accountant in the US my first tax year living year, and her advice was "don't use an accountant". I have no idea if this is true or not, but according to her, the IRS's view is basically, "we know this is complicated stuff, so do your best, and if you make a mistake, no big deal", whereas if you hire an accountant and get something wrong, the assumption is that you're trying to avoid taxes.
That advice sounds to me a bit like if you go on trial for some small thing (let's say a pub brawl), and you're told "don't get a lawyer, it will make you look bad".
Perhaps it is sometimes a good advice, but it can also be a spectacularly bad one.
Yeah, I was a bit leery as well, but my situation isn't that complicated, so I saved the money and did it myself. Will update from prison later if it comes to that. :)
It seems tax authorities can be surprisingly flexible as long as they don't get a whiff of attempted tax evasion anywhere.
E.g. at some point around 2000 or so, I'd just moved to the UK, and my personal finances were total chaos around the move. I'd sold quite a lot of shares in Norway, and traded quite a bit on NASDAQ via a US brokerage account (in 2000... yes, it got ugly; thankfully not that much money), and had income from both UK and Norway split between employment and contracting in the same tax year. And transfers back and forth between my UK, US and Norwegian accounts... To make it more annoying, UK and Norway have different tax years (Norway follow calendar year, UK does not). And to be honest my record-keeping at the time was shoddy to the extreme.
So I wrote a letter to UK and Norwegian tax authorities where I set out the details of my income, assets and losses as best I could. I told them I had no clue how to accurately figure out exactly what was due (for the US it was easy because it was all losses that year; the US brokerage account was just relevant because it provided deductions for losses on my Norwegian taxes). Gave them a number each that I thought was close to correct. Filled in my tax returns with estimates (and explained in my letters that the numbers were estimates). Both just accepted my estimate with no arguments, and no requests for further documentation. No fines, or angry letters, or conflicting estimated tax calculations or anything, which was what I feared when I sent it all off.
I don't know much about the UK or Norwegian tax authorities, but at least with the IRS you might have just gotten lucky. They only have sufficient manpower to go after a small percentage of questionable returns, so even if you make a lot of mistakes on yours (or evades taxes), there's still a good chance you won't get audited unless you're a big fish.
Yes. I moved to Iceland from Tennessee, a state with no state income tax. However, I needed a permanent address where I was sure I'd get mail, because I hadn't yet found a long-term rental in Iceland, so I did my Federal tax return using my mom's address in Arkansas, where there is a state income tax.
A couple of years later, Arkansas wanted to know why I didn't pay them any tax on my income from that year. I called someone, explained the situation, and he just had me write a letter. Problem solved.
We're conditioned to fear the IRS because audits look horrible on fictionalized TV shows. In reality, I think you're right. The IRS is just a collection of people, and if you make an honest effort, the person on the other end isn't out to ruin you.
You're right that this isn't applicable in most European countries, but it does hit Americans harder in other major world cities which have lower taxes than the US, like Hong Kong or Singapore.
I'm in Abu Dhabi, where there is no income tax, so tax treaties aren't really helpful. As a result, salaries here are actually proportionally lower than they would be in a higher-tax country, which works out well for everyone besides Americans. The exclusion is helpful, but you can still end up with a substantial tax bill as well as having to be careful about how much time you spend in the US.
You're right of course, but this is mostly by design. Rightly or wrongly, the US position is that you need to pay taxes to someone. I think the intent of the laws is at least arguably reasonable, but the execution isn't great.
Assuming for the moment that the US isn't going to stop taxing expats on foreign income, I do think the exclusion limit is too low by about half. Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
And the limitations on time spent in the US are absurdly low as well. I'm an academic, so if I attend a couple of conferences there, I actually have to count the days left when I book a holiday to spend with my family. I have almost as many paid vacation days in Iceland as I'm allowed to spend in the US without forfeiting my bona fide tax home status, which is ludicrous.
> Rightly or wrongly, the US position is that you need to pay taxes to someone. I think the intent of the laws is at least arguably reasonable, but the execution isn't great.
You do pay taxes in (for example) Hong Kong. It's just not as a high as the US rate.
> Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
That would certainly make sense. Personally, I think a more thorough analysis of income sources is also in order: if you're genuinely working for a foreign company as a foreign employee, I think that should be treated differently than a wealthy person who is just avoiding US residency for tax purposes, despite the majority of their income coming from US sources.
> You do pay taxes in (for example) Hong Kong. It's just not as a high as the US rate.
Then you'd pay a proportionately lower rate for your US burden. The overall amount of tax owed should be relatively constant.
> I think a more thorough analysis of income sources is also in order
I suspect the issue here is the manpower required to do it and/or the potential for extra loopholes. Could I start a company in Singapore that just happens to derive all its income from US sources and has me as its sole employee? Taxing by amount makes a certain degree of sense in that regardless of shenanigans, if you get money at the end, we tax that money. (Though of course, we don't actually do this in the US with things like capital gains.)
You can't really work in Hong Kong, Singapore, or Switzerland making over $100k without milking the housing deduction given that income taxes are lower than the states.
If the country has no taxes, the foreign income exemption doesn't work. Also, it maybe doesn't work if you are going to get a job in Iran, Cuba, or North Korea...there are certain standards to meet.
Not the only country. Norway will also tax citizens in certain circumstances. I believe though Norwegians can state they have left the country permanently (though can still return) and lose rights to social benefits such as unemployment payments until you have been working in the country again.
Since living in Norway, I've learned of this. It seems that the taxes are generally when you are making money from Norway - it is possible to get disability money from norway, taxed, and live abroad. You do lose the social benefit rights, but you keep your taxed income. My understanding is that they figured that in the long run, it actually saves the country money because of the lack of social services provided, and works out if one moves to a place with a strong exchange rate against the NOK.
One advantage of the US system is that they don't care when you switch your country of residence. My understanding of places like Canada and Australia is that emigration can cause a tax hit as you have to logically liquidate your assets in a final tax filing. Can non-US-ians comment on this?
> The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed.
There's a ~100k foreign income tax exemption and many countries have tax treaties with the US which bypass even that and give a US tax credit corresponding to the already taxed foreign income.
Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) and there's the additional burden of caring for and declaring your income to the US, most expats don't need to be involved with the home country aside from grousing about it and renewing their passport.
Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad)
Check with your accountant for an authoritative take on the following, but since I happen to be right with a certainty approaching "Gravity exists" I'll write the correction here: There exist two tests by which you can qualify for the Foreign Earned Income Exemption. One is the physical presence test, which is automatically ruled in your favor (i.e. you are ruled to be a foreign resident) if you spend less than 30 days in a tax year physically in the US. The other is the Bona Fide Residence test, which is less of a deterministic question than physical residence. There's no limit to the amount of time you spend in the US every year as long as you meet the IRS examining officer's impression of someone who "clearly lives in a foreign country continuously for an indefinite period."
I've had years with upwards of 100 days in the US, and never had any problem with claiming Bona Fide Residence in Japan. As my accountant phrased it once: "If you've got only one refrigerator, and it's on, and it isn't in the US, then you're certainly BFR abroad."
Thanks, I'd checked the IRS website a long time ago but I guess I missed the BFR, or assumed you had to fit both rather than either, I only remembered the physical presence test (which you can easily breach if you work in pretty much any EU country, if you spend all your PTO/vacation time back in the US)
That's the point. It means skilled American workers are less likely to work elsewhere, thus increasing the competitiveness of America by restricting the supply of skilled workers for the rest of the world. It might suck for individuals but as national policy it makes a lot of sense. Plus it raises more tax.
Most expats I know end up sending substantial sums back to the US, either directly or indirectly by moving back their and spending their accumulated savings.
It really doesn't make sense how the US is the only
country which insists on taxing their citizens, no
matter where they live.
Brit here and I disagree - the American system seems a lot fairer.
Taxing on residency rather than citizenship creates a bizarre system where if you're a millionaire you can enjoy all the benefits of being a British citizen, but you can be "domiciled abroad" in Belize, Seychelles, Monaco, or other tax havens.
Then you can be British enough to donate millions to a political party, receive a knighthood - but pay far less tax than a middle class office worker.
If you want to be taxed like a citizen of Seychelles, it makes sense to me that you'd be a citizen of the Seychelles and not any other country.
I'm also British. The American system is insane and catastrophically unfair, which is why you keep seeing news stories about how horrible it is.
The British "non dom" system is unique to the UK and is not any particular feature of residency based taxation (which is how every country in the world works save America and Eritrea). And there are constant rumblings about abolishing it or reforming it. I suspect non-dom status will eventually go away, but residency based taxation will stay.
At any rate, no country other than America has any chance of implementing such a policy. To make FATCA work required one of the most draconian laws that's ever come out of a democracy. Most people don't understand it at all. The law says that every financial institution in the world must obey the USA. This is enforced by not only taxing US assets, but because many institutions don't have any US assets, forcing those that do to recursively apply penalties to all their trading partners who aren't in compliance. A big part of the cost of FATCA isn't even reporting Americans to the IRS. It's keeping track of every firm you trade with and whether THEY are reporting their customers to the IRS ...... and then violating your contracts with them by withholding payments until they fall into line.
I see a lot of people saying things like, well, the threshold is high enough that all I have to do is paperwork. Or "it doesn't seem so bad really". I find this to be naive. Here's what can easily happen next:
• The threshold is lowered. As expats have no meaningful representation or organisation as a group, taxing them is effectively free money.
• The FATCA recursive enforcement infrastructure is extended to mandate global compliance with other US laws, by making banks impose penalties on any company or person that Congress doesn't like. People get upset as they suddenly realise that US law now takes precedence over their local laws.
FATCA is literally a totalitarian takeover of the entire global financial system by America. They don't care if people have to violate local laws in order to obey. The view of Congress is that American law supercedes all local law. It's the formal establishment of a global American empire.
you are confusing country of residency with country where you earn your income.
if a millionaire lives in Belize, earns his money by having his money invested in Belize and pay whatever taxes Belize require, that law will give zero tax to the usa. it will just force that millionaire to give up citizenship.
now if he makes his money in the usa, then your point is invalid as you clearly don't understand the issue. also this is exactly what corporations do already and this law won't change a thing.
I said this before, but I will say it again - as a child, I dreamed of emigrating to the US and getting a US citizenship. Nowadays, I would reject one if anybody offered, and if I had one I would denounce it. Like the article states - being American abroad is now seen as liability, and I am not surprised Americans living abroad give up their citizenship just to stop dealing with this nonsense.
I really find it hard to feel sympathetic about rich Americans (only applies to income of 100k+) paying no more taxes than if they lived in America (live in a country with higher income tax, pay US nothing, country with lower tax, pay US the difference.)
This seems hardly worth 'denouncing' American citizenship. Can you explain?
I feel like threads like these really illustrate the difference between someone on HN and the average person.
It's not about America per se - I would feel the same way about any country. I live and work in UK while being a Polish citizen. If Poland now asked me to pay income tax in Poland based off my income in UK, I would be very very upset - I already pay income tax in the UK, so paying it twice sounds absolutely ridiculous. On the most basic level - Poland has absolutely no "right" to any of that money. I would denounce my Polish citizenship over this if that was the case.
And US feels like they do have the right to the money of their citizens, even if they made it abroad. Every single person I spoke to about this said the exact same thing - the US tax system is stupid, and it's the example of US behaving like it owns the world and its own citizens. Just because it only targets "rich" people doesn't make it any less stupid.
> I already pay income tax in the UK, so paying it twice sounds absolutely ridiculous.
You aren't paying twice. That's the point. Assume the US has a 30% tax rate in your bracket. Poland has a 35% rate for that same bracket. Then as an American expat, you would pay 35% in taxes. If Poland had a 25% rate, you'd pay 30% (25 + 5) in taxes. You aren't paying 65% of your income in taxes. You aren't paying twice.
> On the most basic level - Poland has absolutely no "right" to any of that money.
Then Poland has the right to say you are no longer a Polish citizen that can take advantage of Polish embassies or move back to Poland at any time as a full citizen.
Except that's not what the law actually states. If you make over a certain threshold you have to pay income tax on it to the U.S. even if the income is from working in an overseas company, paid in a different currency, and stored in a bank in that country and you don't spend even a single minute of your time in the U.S. for that year.
It's not sensible if none of your other coworkers have to worry about this and they're all foreign citizens as well. It's a stupid tax policy that is basically a shakedown.
So basically "you will always pay us a bit of your income,no matter where that income comes from, or you are no longer our citizen"? That's a bit of a mob mentality, and in general, not how countries work. You don't need to pay taxes to be a citizen and enjoy protection of the law, otherwise what would we do with people who really don't earn anything? Kick them out? I'm perfectly happy to pay income tax on the money made in Poland. But I see no reason to pay income tax on the money made elsewhere.
And yeah, I'm not totally sure about your example. I'm quite certain that I would pay 30% of my income in Poland, and then US would want a further 30% of the remaining amount, IRS would not care that I have already paid income tax in Poland.
Funny thing is that this affects not only American citizens, but also anyone who studied, lived or worked in the US, regardless of citizenship, since unless you prove otherwise, that could be taken as evidence that you are a "US person".
They mention at the end of the article the "same country exemption" which is a realistic solution. If you are an American, you can contact your representative and ask them to support it. Here you can find more info from the ACA about FACTA and how it is harmful to Americans abroad: https://americansabroad.org/issues/fatca
Is taxing expats abroad really a problem? First, there is a large baseline exemption and most expats abroad don't pay U.S. taxes. Second, if you're intending to permanently leave the U.S. why should you keep U.S. Citizenship? And if you're intending to come back, is it really unfair to tax you?
American citizenship has real benefits, especially if you're rich enough to pay expat taxes. The U.S. protects you and your property everywhere in the world. My dad was stuck in Yemen when the civil war there broke out. His hotel was shelled. That blue passport was his ticket out on a C-130.
Are you serious? To me, as a person from EU, it seems insane that a country where I haven't actually earned the money would want to tax it in any way or form. That's just ridiculous. You should pay income tax in the country where you made money. And why should I keep citizenship of a country that I moved out of? Because...I want to? Because I feel like a citizen of a country even if I live and make my living somewhere else? Doesn't mean that that country has any right to a part of my income.
A lot of what you ask seems that it could be a personal question depending on who you ask.
I certainly wouldn't presume or preach to others with regards to how they view their country, however:
1. We (I'm an expat as well) pay little taxes to the U.S. because of the foreign earned income credit. The paperwork is onerous, yes. But it's not as bad as some make it out to be, unless you're in an exceptional income bracket.
3. Many U.S. expats wouldn't dream of renouncing their citizenship, because it simply means more to them than that.
It's more than residency, it's identity. And it's something we pay into. Many Americans will tell you...they don't like a lot of taxes...but they /will/ pay taxes, and they expect everyone to. It's a "we're all in this together" bit. Even if you're abroad, and you're paying a paltry amount, you're still chipping in.
This is the part that often (note: not always) leads to valuing an American higher than a non-American. I have real problems with that. 911 is virtually celebrated, while larger tragedies the world over are not. What makes an American soldier's life more worthwhile than a baby born with Aids in some African backwater? If you believe all the flag-waving, nationalism. Otherwise media.
And I get that small number of deaths is a tragedy, a large number is a statistic. That doesn't change the reality - a life is valuable no matter who's it is, and where that person lives.
I'm a citizen of the world. I was born in Africa, have lived in the US, and now live in Europe. I rate myself as no better or worse than anyone else on this planet, including Americans. Most of all I'm insanely grateful to not be American.
This doesn't really apply to expats, but income tax isn't really about income, it's about funding all the public services you use. There are problems right now in parts of Canada where wealthy people from other countries are sending their families here and staying to work in their home countries. Their families live in multimillion dollar houses and get hundreds of thousands a year in "child support", but they also consume a lot of public services that they never paid into, like roads, healthcare, schools, and sometimes even welfare. Millionaires are getting welfare! It's insane.
That sounds like "child support" should be taxed then. If expats can send "millions of dollars" to family in Canada and they don't pay a single cent as tax, then it's a tax system problem. And hey, on the other hand, if that family spends those millions in Canada, then it's a net benefit :P I'm sure even if the "income" is not taxed, all the money they spend actually is, so their amount of taxes paid to Canada might be significant.
For sure it's a tax system problem, but in the usual case (where it was already taxed once in Canada) it makes sense not to double-tax child support.
AFAICT most of the money isn't spent here, it's parked here as a hedge in case something goes south in the home country, usually in real estate holdings. The biggest effect I can see is that housing in the city is too expensive for the locals now so families are being driven out into rural areas.
Why? Why should the location of where you make money matter? If I make a million dollars in Indiana, I need to pay taxes on it. If you make it in Hong Kong, you shouldn't?
It's not like federal income is an admission fee. Or a direct tax on something the citizen uses (like a toll road). You benefit just as much from the government building a VA hospital, AIDS research, or a US carrier stationed near Syria.
You don't suddenly stop being an American when you go live somewhere else.
I don't think we will ever agree on this. I think income tax should only be paid in the country where you made the money, because the money comes from a business in that country. You think you should also pay it in the country where you are from, because you should support it(even if that country hasn't done anything to help you earn that money). To me, that sounds insane. To you, it doesn't. I'm not sure we can reach an understanding.
Protection? Yes, maybe that's the reason. To support the US military efforts and budget.
On a side-note: If I would applied to the US greencard, and then decided to move back to Germany, I would have to pay double income taxes. To Germany and to the US. You don't even need to be US citizen.
To be clear, you wouldn't actually pay double-taxes (I think -- if you make more than $100k, it depends on if the Germans and Americans have a treaty over it, but most countries do, I think). You'd have to file twice, but the US side would consist of forms that say you don't owe the US government anything because you already paid more to the Germans than the US would have charged.
There are cases where double taxation can occur that aren't covered under tax treaties. Consider an American working abroad going on a business trip to the USA. Depends in the country, you can be on the hook for taxes in both countries, where neither country recognizes the right of the other to tax.
Double taxation does happen pretty regularly, in particular, the USA often doesn't recognise various types of European investment and pension instruments and that causes complications. It's a really byzantine system that shouldn't even exist at all. People who live outside the USA get nothing from the US government, so they should pay no taxes. Every other country has this figured out.
Not necessarly disagreeing, but when you say "many" (And that 266% increased made headlines everywhere), I feel it needs some context:
8.7 million abroad.
3,417 renounced citizenship.
Or, .039%.
I'm going to take a stab at this and guess that's some of the 1% right there who had millions stashed abroad. Maybe the tax law was painful to them, but for the rest, it's hardly a crisis.
The statistics on renunciations may not be correct. There are lists of people published who renounced, but every time I read a story about FATCA I keep coming across comments posting by people who claim they gave up their citizenship and never appeared on these lists.
The real question is how many people would like to give it up, but can't, because obtaining citizenship where they live is extremely tough and because the US is unusually vindictive towards people who try and renounce. They can even retroactively undo your renunciation if they decide you did it for tax reasons.
Seen from one angle, US citizenship looks a lot like modern slavery. You're born into it, it's difficult to escape, you get no benefit out of the relationship and no matter where in the world you run to your 'owners' will demand a slice of the fruits of your labours.
This is Hacker News, right? Way easier to work in SV with that blue passport/screaming chicken than otherwise (except possibly countries such as Canada). Throwing away easy access to the Valley strikes me as a reasonably high price for non-retirees to pay.
The flip side is that foreigners who invest in America aren't taxed at all. At least in Singapore, I know people who invest in the US stock markets and pay not a single cent in capital gains taxes or dividend taxes (Singapore does not tax these). I'm not sure the citizenship based taxation makes the most sense.
The crux of the issue in the article's title assertion, that "US Expats are toxic" isn't because US Citizens personally have to deal with filing extra taxes; it's because the foreign institutions are also required to file paperwork and go through the hoops. I'm a US citizen living in Germany. When I open a bank account, the US doesn't "just trust" what I report to them, they also require the bank to validate my filings, creating extra paperwork and costs for the bank. Some banks in Germany will refuse to open accounts for Americans because the extra cost and paperwork tips the cost/benefit equation to the point where it doesn't make business sense to serve American customers -- they cost more to do business with than it's worth.
To address the "why should you keep US citizenship?" question: If you move abroad, you won't be able to get citizenship in the country that you reside in for a number of years (depending on where you go), and in many cases, your US citizenship is what makes it easy to get a work visa or residence permit in that foreign country in the first place. So, even if you actually intend to renounce your citizenship, you still have about 5-10 years of living abroad and dealing with the tax implications before you can become a naturalized citizen in the place that you move to.
I'm not trying to argue whether it's fair or unfair to impose the tax on citizens living abroad, just that the logistics don't make the proposal of renouncing ones citizenship so simple.
While many expats don't have to pay US taxes, the reporting requirements are a substantial burden on us - we have to file tax forms in multiple countries, and we have to report on our normal bank accounts, which is pure bullshit.
We don't get any real benefits abroad, and we get charged for everything. Let's say you need something notarized - many places won't accept a foreign notarization, which means you have to go to the embassy. You know how your bank will usually notarize documents for free? The embassy charges you $50 - per signature.
Want to renounce your citizenship? That'll be $2,350.
You managed to end up in the wrong place and civil war breaks out? The US will make some effort to help you, but it wont' come free. U.S. law 22 U.S.C. 2671(b) (2) (A) requires that any departure assistance be provided "on a reimbursable basis to the maximum extent practicable.” This means that evacuation costs are ultimately your responsibility; you will be asked to sign a form promising to repay the U.S. government. (http://travel.state.gov/content/passports/en/emergencies/cri...)
And if you do renounce your citizenship, you risk not even being allowed back in the country to visit family. --People who have done so have been denied visas by the US supposedly because they aren't well enough established in their new country. And yes, this can even happen in the event of family emergencies. So giving up US citizenship could prevent you from visiting a parent or other family member on their deathbed - not something most people want to think about.
I partially agree. I lived in Australia for 5 years making a nice salary and I was required to pay zero taxes to the US government during that time.
My biggest complaint is the paperwork. Besides FATCA, there is also the FBAR filing requirement. You need to report every foreign bank account that has more than $10,000 in it. This amount hasn't changed since the 70s.
Taxing us isn't really the issue. The bigger problem is that they've made the reporting requirements so onerous that many foreign banks no longer offer accounts to American citizens on any terms. This makes longer-term living in a foreign country very problematic.
This law may have been well-intentioned but it has some very toxic fallout for innocent people.
You have no idea what you're talking about. It isn't just about taxation it's about countries being forced to report to the IRS. If you have a foreign account with a balance over $10k and you fail to report the account (in a filing separate from your tax returns,) you are fined $10k -- no exceptions. If the balance just goes above $10k for even one minute, you are on the hook for reporting that account for as long as you have the account. Except for Eritrea, no other country has citizenship based taxation. Additionally, you can't even open bank accounts overseas as an American with many banks. You also don't seem to understand citizenship law. There are millions of Americans who have never even been to the US, yet must file taxes and report bank accounts. As far as that blue passport getting you on a C130.. That doesn't happen anymore. The State Department routinely leaves Americans stranded in war zones while the French actually send the military to get their people out. US consular services abroad are a joke. I've lived overseas for about 8 of the past ten years and I routinely deal with consular nonsense. Finally, to your point about being 'rich enough' to pay taxes; the exception is only about $96k -- however if your working in Paris or London or Tokyo, that is barely a survival wage for a family. That aside, you still are subject to double taxation as well if you're in a country without a tax treaty. Frankly, I suspect you've never lived as an expat nor do you understand the facets of the law that make it so onerous.
I've worn te uniform of the US military and paid my 'dues,' yet to imply that an overseas American is any less American is offensive. When I am outside the US, I do not consume a single taxpayer funded service. All consular services for the most part are self-funded. If the time comes when I need the Marines to come bail me out, send me the bill and I'll pay cash; otherwise the IRS can leave me the hell alone. I am a proud American, but I despise the Democrats who passed FATCA along with the class warfare rhetoric that led to it. To Democrats, overseas Americans are presumed to be money launderers, drug dealers or tax evader. I am neither yet the burden of proof is on me. Did you know when Insend money to the US, I must provide proof of the fund's origins? I have to prove my innocence in order to use my own money! FATCA is worse than the NSA -- it's a license to violate my financial sovereignty.
The problem isn't just the taxing, you spend several days each year trying to report correctly the fact that you don't owe anything. If you make a mistake, the consequences may be quite severe, so it's safer to hire an expert. Outside the US, experts on US tax law don't grow on trees, so you spend a lot of money on this.
By the way, you speak of giving up citizenship like it's a small thing. Once you do this, you can never get it back.
'US Persons' in the context of this law is not the same as US citizens. It may include family members or business partners of citizens, or even of family members of former residents. It even affects many people who have no personal connection to the US, in some cases even people who have no right to enter the US without a visa if at all.
Fatca requires financial institutions to find and report any such US persons among their customers, and report their details to the US. This can be problematic, not just because so many US persons aren't even aware they are considered US persons, but also because in some countries banking privacy laws make it illegal for banks to record such information of their customers. These banks are now torn between following their local law and following US law. As a result, just offering certain services to US persons may carry a significant risk.
You must look at it from the perspective of the Oligarchy: Wars, regime-changes, support to "moderate" forces, spying on the world just cost money. And you cannot afford all that by only taxing those at home. You need every dollar. So, you tax the expats (8.7 million of them!). They are abroad to work after all - they MUST have earnings. As an alibi for your new revenue source, you pass a new law (Fatca) while saying that you fight "terrorism, tax evasion and organised crime". Again! The game you have played so well (and so often) in the past still works. This time it's even easier: Expat "elitists" have no representation, and the Average Joe cannot think about Fatca when he comes back home - tired and overworked - after two jobs, worrying about his CC debt and plethora of other issues.
If you asked "Average Joe who is overworked, has two jobs and CC debt" how much he was concerned about the great injustice of requiring expats earning >$100k/yr in low-tax nations to make up the tax difference, you wouldn't get much sympathy. However, it wouldn't be very honest to attribute his lack of sympathy to apathy. I imagine he'd care, and that he'd find the present arrangement agreeable.
I have experience dealing with this. I'm not a U.S. person, but I have a company in a EU country that I co-own with a U.S. citizen (through personal holding companies). Our (EU) bank first demanded we fill in 9 ridiculously extensive forms detailing our entire business, then raised our bank fees from 5 to 105 euro per month, and then closed our account, giving us 2 weeks to send our balance elsewhere. All within a year time.
It's extremely hard for us to find a new bank outside the U.S., and inside the U.S. isn't easy either, since we're not a U.S. company, and do no business there. Thank god we're liquidating this company anyway.
Doing consulting work, I actually did some work for the bank that closed our account. And honestly, while I didn't get close to the departments that deal with FATCA, I can't say I blame them for closing our account. You should see how much of a headache all of the new regulations in the financial industry are for the institutions.
Major banks in the Czech Republic will not issue checking accounts to US citizens because of the costs of FACTA. This leaves expats with large, bureaucratic, formerly state-owned banks, like Ceska Sporitelna, which charge exorbitant fees and have dubious customer service. FACTA is a big problem. It is comical that major banks in Europe have a "No Americans" policy because of this stupid legislation; it needs to end.
It appears the first $100,000 you make overseas is tax exempt by the FEIE[0].
As far as I understand my rent details as well as bank accounts overseas are reported to the IRS. This extra work can be seen as a burden for both parties.
Try opening a bank account as a foreign US resident. It took my over a month to get my bank account and required copious documentation and a lawyer. All the time there was no guarantee that I would actually get the account. I personally know several US expats who were unable to get bank accounts. It's so much work for the banks that many are just not accepting US citizens for new accounts.
My wife and I had been planning on buying a home in either Belize or Costa Rica but gave up this plans because of FACTA. Too bad because I really like Central America and was looking forward to a major lifestyle change from integrating into a local rural community.
Really a messed up law and messed up policy.
I do understand why our government did it: not good for the economy to have older people spend their social security money in a relatively inexpensive foreign country. I think the money laundering and anti terrorism arguments may just be a smokescreen. This may also be just our government throwing their weight around, bullying other countries.
You really changed your life plans because of FATCA? Are there really no banks in Central America willing to work with Americans? I'm in Singapore, and though I've had to close one bank account due to it, I've had no problems with my others. Filling out an FBAR the first year took me a couple of hours to figure out, but every year after it took me like 10 minutes.
Yes I did. My wife and I had a pro and con sheet for reasons to move and reasons not to move. FACTA tipped the scales, so to speak, and we decided to not do move.
I am still a little sad about our decision though. I think that life is more interesting living in different places, doing different kinds of jobs, etc.
BTW, I didn't want to move for financial reasons as much as wanting a low key lifestyle. There is something about Central America that makes me feel great just hanging around. Anyway, my wife and I live in the mountains of Central Arizona, and I also love our lifestyle here, so life is good.
My general experience with FATCA has been quite mild. I've been in Singapore for 5 years, and I had one investment account that had to be closed, but all my bank accounts were fine. The FBAR took me a few hours to figure out how to fill out the first time, but every year after it only took 10 minutes to update the numbers. The laws about starting a business are much more onerous. If I become a founder/shareholder/director of a company not incorporated in the US, there are all sorts of painful compliance requirements that are basically there to make me rather incorporate in Delaware or something. Net net, I sense that except for a few unfortunate cases, most of the pain of compliance with FATCA is coming from those who it was meant to target: wealthy tax evaders. This article did appear in the WSJ...
I am a business owner living overseas in Asia. I generally spend about $2500/year on tax preparation, between my personal return and the 5471 form that I have to file to report my company information on my US tax return. While my financial life does have it's complexity, I have to pay this simply for compliance, independent of income. The $100K/year deduction is on "earned income", i.e. salary. So if you have other income, e.g. dividends or other capital gains on real estate or selling your company, you have to pay at your full standard income rate (small company dividends are not "qualified" unless the US has a corporate tax treaty with the host country).
As a business owner, my best strategy from a personal tax perspective is that my company makes no profit - it should all go to me as salary. In the past, that has put me in conflict with a non-US partner, as it didn't match his best strategy. And it means that "profit sharing" for employees doesn't make sense.
So US tax law costs me considerable money in compliance costs and fundamentally distorts the way I run my business, for no additional tax revenues to the US.
Fundamentally, residence based taxation makes more sense. It's more direct and easier to manage. People talk about these benefits of being a US citizen, as if I don't get services from the country where I live.
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[ 0.92 ms ] story [ 190 ms ] threadAlso US is still the sole global superpower.
[1] http://travel.state.gov/content/passports/en/passports/infor...
- Social Security is collected on what I paid into the system while I was living/working in the US. Not a part of this
- Voting is a right - nothing to do with taxes
- My "consular services"? My passport renewed? I cost me $100 or something like that to get my passport renewed, and most of us never go anywhere near our "consular services" - I'm not even sure what they offer, except to business people over here via the Amer. Chamber of Commerce (which they pay an arm & a leg to join)
Your rights can only be secured if the Government can pay for them.
Wrong.
Your Social Security benefits are proportional to what you put in (usually), but you will receive more money than you put in and more money than you money earned over that time period, assuming a normal life expectancy.
The trope that you only get what you put in with SS and Medicare is false.
Trust me, it is as close to nothing as nothing gets.
It can be split into three families of spending:
- defense, which benefits you globally via Pax Americana, free trade routes etc. and should you require it, "Captain Phillips" style rescue.
- "socialism", in the form of benefits that everybody has to pay for and that you can receive if you trigger certain situations (retirement, unemployment, etc.). Most expatriated Americans probably already benefitted from free education which is included here.
- "generally making the country locally better" (justice, environment, etc.).
Of these, only the latter doesn't directly impact Americans abroad. The first benefits you wherever you are; foreign citizen somewhat benefit from Pax Americana but there is no guarantee it will continue, whilst US citizen are covered globally with much more certainty. The second is a form of compulsory insurance for life developments that will probably coincide with repatriation. But that's about 7% of the budget (rough back of the envelope).
The question is why don't other countries tax their citizen abroad? I think it is mainly because they can't afford to enforce it (good luck, Estonia, forcing JP Morgan to give you access to their New York client data). If they could, with any degree of certainty, they would in a heartbeat. France proposes to do it every 6 months.
Tell that to the lybian, syrian, iraki, Salvadoran, etc... that have "benefited" from the "Pax" Americana
The question is why don't other countries tax their citizen abroad?
I assumed that the general consensus was that it all balances out at the end of the day – countries don't tax their citizens abroad, but do tax noncitizen residents who have income in the country. Either approach isn't all that bad, but it's interesting to think about how it can realistically be handled where individuals can hold multiple citizenships. My partner is dual US/UK, and completing a US tax return when you haven't lived in the country in decades is expensive and time-consuming.
This is, to put it mildly, a controversial claim.
- Most expatriated Americans probably already benefitted from free education which is included here.
When I point out the insanity of the law that denies free choice of public schools, its defenders usually try to justify it by saying schools are funded by local property tax rather than national income tax. Is this not the case?
Whether you consider that global relatively free trade is not beneficial to the rest of the world is up to you, but as a citizen of the rest of the world who did benefit I'm quite glad the US did not go isolationist after WWII.
Regarding schools, whether the taxpayer's money is used appropriately is another discussion, irrelevant here since Americans, through their elected representatives, chose to spent the money in this way.
Funding-wise, last year's budget spent $100bn and this year wants $117bn on the Federal end for "Education, Training, Employment and Social Services" (see link above) of which $69bn in 2015 is for Education (see: http://www.ed.gov/news/press-releases/obama-administration-2...).
I wouldn't personally advocate that stance - I think it's problematic with respect to consent - but I can see that in the case of extremely high emigration rate the viewpoint might be very tempting.
Interestingly, the US relatively high tax compliance rates, compared to other large/industrialized countries [0]. Presuambly the wealth you refer to is what results in the absolute dollar amount of evasion being higher, despite the relatively low rate of evasion.
[0] http://blogs.reuters.com/david-cay-johnston/files/2011/12/GL...
The US is the worlds #19th richest country as far as GDP (per capita) which makes the most sense as a measure of individuals and taxes.
I don't think it makes any sense given that lower GDP nations should be doing the same thing to extract money from the US economy on any of their citizens who make more than ~$20K (if their GDP were $14K) based on the same "logic".
When The US is happily paying fairly for its brain drain, it can complain. But either way as an expat I actively boycott US services and financial relationships for my own protection.
(edit- make it clear I mean per capita, and reference: https://www.cia.gov/library/publications/the-world-factbook/... )
I plan to become a German citizen eventually, because I'm probably going to retire here. But thanks to Germany's disallowance of naturalized dual citizenship and America's tax complexities, that requires weighing a huge number of problems. At least my German bank (DKB) didn't kick me out.
IANAL.
[0] http://www.gesetze-im-internet.de/rustag/__10.html [1] https://en.wikipedia.org/wiki/German_nationality_law#Natural... [2] http://www.gesetze-im-internet.de/rustag/__12.html
There are a few other rare exceptions. But it is completely impossible under the standard naturalization process, which requires you to renounce any previous citizenship.
It's annoying as heck, particularly as the burden falls mostly on folks who are coloring squarely within the lines. I pay enough for an accountant that I know with $10k of financial engineering the problem goes away for forever, which makes me think the guys with $30 million in untaxed capital gains that they're really worried about are probably not getting meaningfully inconvenienced by this policy.
As an American this upsets me greatly to hear. I feel it makes living abroad, especially to families of average means in this country, almost an impossible feat.
I also wonder if only leaving the country for short duration vacation/business contributes to the "We're the best country ever!" mentality here and the "Wow, look at those weirdos over in America" mentality abroad. Or maybe that's just me paying too much attention to the news lately.
FWIW: this is clearly not the case. It's just a paperwork burden with occasional inconveniences, some bigger than others. Millions of Americans, most of whom have more modest means than the typical software engineer on HN, make it work.
The real harm for business people overseas is that opportunities may be closed for you to invest in other businesses or to join a board or something because your status as a US Person causes a burden for others. At the 100 million dollar level I imagine this is not a big deal but at the startup and smaller growth company level it seems problematic. This reduces the opportunity for soft diplomacy and representing the brand of America to foreign people of means and substance.
I would be curious to know if you have experienced or anticipate experiencing this. Perhaps where you are is more closed to foreigners but there are countries where foreigners do lots of business. Have you been invited to invest or participate in boards?
Doing my US taxes takes about 3 hours, as it's basically updating the previous year's forms to reflect whatever changes have been made and adjusting for salary and exchange rate. As I live in a country with higher taxes than the US, I don't pay anything. US-ians living abroad will become familiar with form 1116 and 2555...
Yeah, FATCA introduces additional paperwork (or web-work at the moment). But, I have to fill out similar paperwork for my current country to account for my US-resident accounts. So I guess both countries wish the other would just go away?
This sort of thing is the financial engineering that patio11 is talking about. It's not cheating, it's doing what the system is meant to let you do, if only you understood the best paths through the system.
I have a similar situation on a smaller scale. I live in one US state and work in another. I file income tax for both, and there's a form that takes my tax liability to my state of work and backs it out of my liability to my state of residence. I wouldn't have known that form existed and would have just assumed I had to pay full tax to both states, if not for TurboTax directing me to that form.
The law will direct you how to mechanically comply, but it won't direct you against complying in ways hurtful to yourself.
I'm generally in favor of trying to crack down on tax avoidance, and I'm sympathetic to the cause they're trying to advance here. The "spirit" of the tax law is basically "you gotta pay someone their fair share", but everyone knows that $100,000,000 means you don't have to comply with the spirit of this law any more than you did the one before or the one before that.
https://en.wikipedia.org/wiki/International_taxation
You can sort by what you want to see: http://i.imgur.com/hSsVmwd.png
Compare this to Switzerland that considers its citizens living abroad part of the "fifth Switzerland" (there are 4 official language regions in Switzerland). They can vote online (in some Kantons/States) and participate in government programs to keep in touch with or learn about their roots. All without taxation.
Of course, people here complain about citizens living abroad voting in local elections... Representation without taxation!
The general issue of indirect democracy not representing the will of the voters is a fundamental one and not solvable, also goes to far for a discussion like this. Side remark: JFKs Profiles in Courage is a great book on the topic.
You yourself stated above that they don't?
I got your argumentation as "I never was represented anyway, so not being represented as expat did change nothing". But the difference is that the other americans have representatives that are supposed to act in their interests. Expats have only the afterthought of being american and that one could think about them sometimes, since they vote.
Who are the elected officials who are supposed to represent them? I do not think that there is one, that is not how your system works.
The elected officials who represent a given expat are those from the district where the expat is registered to vote. For example, when I lived in France, I was still registered to vote in Wisconsin, so I voted for Wisconsin Congressmen, and they are who I would contact if I felt like wasting my time by making my opinion known to legislators.
The article is trying to say that because expats don't have any representatives exclusively for them that they do not have representation at all. I find this to be absurd. Yes, small interest groups have trouble getting action in the legislature, but that's hardly unique to expats, and nobody says that e.g. janitors pay taxes without representation just because there's no Janitor Congressman.
We can do this for any issue which is not related to state/district borders. No single member of Congress represents urban Americans, or rural Americans, or WoW players, or hair stylists. Would we say that they pay taxes without representation? Of course not. Why are expats any different?
I lived abroad for several years and I never felt like I was without representation. I voted and had elected officials the same as my fellow Americans. The degree to which I'm represented in Congress (i.e. nobody is really answerable to me, but I can write to them and get a form letter back if I feel like wasting some time, and once every couple of years I get to pretend like my vote matters) was no different at that time than it is now.
Clearly you are unfamiliar with the level of gerrymandering we have implemented, which makes it feel unfair when a distinct property owning group (say, retirees in Costa Rica) don't have their own gerrymandered pet politician just like the yuppies or inner city poor or rednecks have in congress.
Unevenly enforcing a corrupt system feels worse than merely having a corrupt system.
They 'make sure' our interests as expat are being covered.
Sure, we still get to vote, but when you make up less than 3% of your representative's constituency, you're even more screwed then the average person.
I personally never had any trouble voting while I was living abroad. It was slightly inconvenient to track down a fellow American to witness it, as required by the absentee ballot I was issued, but no big deal.
Makes me wonder what would happen if a significant number of expats would agree on some low-population state to remotely take over. How far could bureaucratic friction be increased to fend off that kind of "attack"?
It's incredibly frustrating how even when living overseas you have to have some sort of residential address for many things. I use my father's address for this purpose, which is useful since he lives in a state with no local income tax, reducing some of my paperwork.
1. With my time difference, I'd have to call my reps at a time when I'd normally be getting ready to sleep just to catch them in the morning.
2. In addition to that, not everyone has good internet connection. Especially if you live in a remote area. Prior to a year ago, my internet connection at home was fairly slow.
3. Yes, I'll admit that I forgot about Skype since it wasn't reliable for me in the first few years I was here. However, cost is cost. And having to manage Skype Credits, which I'd never use elsewhere, is just an extra burden compared to what it was like back in the States.
And aside from that, it still does not detract from my original statement:
> the effectiveness of getting your voice heard by your "representatives" (the reps from your last permanent residence in the US) is much more difficult
It's not just the contacting. It's also getting them to even care because you don't live on US soil. None of what I'm saying is an excuse, and I don't know why you seem intent on not acknowledging that it can be legitimately difficult.
As for caring about your opinion, why would they care any less about you compared to any other voter?
I said the caring part out of frustration with the current system. I've always felt that if they couldn't map you to a US address within their jurisdiction, then they'd know that you had less of an ability to influence other voters around you via petitions, grassroots campaigns, etc. So discounting your opinion wouldn't matter as much.
As for petitions and such, I imagine that would be much less of a factor now with the rise of social networks and such. But the views of our elected officials may take some time to catch up to that.
This seems pretty ironic to me given the "no taxation without representation" principle.
https://en.wikipedia.org/wiki/File:DC_2013.jpg
edit: spelling / typo (thanks mikeash)
You can vote for president, but you have no voting congressman.
Cultural tidbit: If you're a resident of the D.C. area, and you live in Southern Maryland or Northern Virginia, be careful not to call yourself a Washingtonian. Residents will kinda frown at that. There's a perception that sometimes residents from the neighboring states will make it seem (unintentionally or not) that they're part of the city itself, without paying the cost of being an actual resident: No representation.
Consider that as you will. I always thought it was yet another little quirk of what is a pretty unique city.
(I'm from Northern Virginia. ;)
Wacky question: does the President count as a DC resident and is therefore bereft of Congressional representation, or does he technically remain a resident of wherever he came from and get to vote for those members of Congress?
I really love those DC license plates. What I especially love is how Congress still has the final authority over all government matters in DC, so this is quite a snub by the local officials at their Congressional masters.
Nonetheless, I still agree that it's incorrect, and strangely enough, I thought the author's own mention of the bipartisan support of FACTA reform is evidence enough of this. Spread out among constituent states, our impact is probably insignificant. On a national (federal) level, it certainly can be. We're large enough (as he notes) to be a significant body, and we have an oversized impact compared to the rest of the population with regards to how America is perceived in the rest of the world. It's good to know they're examining the issue. I'm sure it had good intentions in the beginning, and I'm confidant they can make some improvements.
I'm living abroad and you can definitely see the impact of the US tax system in the background of expats: Americans are severely underrepresented. The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed.
The folks with a trickier situation are the ones who either a) are getting subpar tax advice (really, really easy, since few accountants are qualified to talk about multinational taxation and those that are generally charge a bundle) or b) folks who live/work in a low-taxes-low-services nation but end up getting a mid-taxes-no-services bill tacked on due to their US citizenship.
Representative examples of the two regimes: I have lived and worked in Japan for the last ten years. Japanese tax rates are generally on par with or slightly above US tax rates. (There exist important qualifiers on this for practical tax planning for small businesses here.) This results in me every year shipping my accountant a lot of numbers after which he comes up with a calculation which says something like: "Taxes owed to US: $20k; taxes accrued in Japan: $22k; take Japan/US tax treaty credit; net tax owed to US $0."
On the other hand, consider a high-salary employee of a bank's Hong Kong office. The HK top tax rate is 15%. The US top tax rate is 39.6%. Uncle Sam will happily advise you that you have to pay the 24.6% difference (on your last marginal dollar, naturally).
All of the above assumes one is doing one's level best to pay the lowest tax bill consistent with the clear intent and established practice of the enforcement divisions of the laws of the United States. This, regretfully, does not describe all taxpayers.
And if you make more than $100,000 but live in a country that isn't a tax-haven, you exclude that income too because you're only taxed on the difference between the taxes you would owe the US government and the taxes you paid in your home country. In Europe at least, you're almost always taxed at a higher rate than the US would have taxed you, so again, you don't owe anything. You're only looking at that 30% burden if you live in a country with no taxes and you make millions of dollars (because again, the first $100k is excluded).
I agree it's a bit crazy that the US taxes worldwide income, but the practical consequences seem pretty minimal. My bank has no problem with me as a customer, or at least if they do, they haven't said anything to me about it.
There also appears to be a factor of risk. I'm not American but have had Americans in my team. A slight procedural error, either by themselves or by the IRS, can be a huge financial and legal problem, and expose the person to litigation. It seems draconian and unfair to me.
Thus the practical consequences are more than minimal.
Perhaps it is sometimes a good advice, but it can also be a spectacularly bad one.
E.g. at some point around 2000 or so, I'd just moved to the UK, and my personal finances were total chaos around the move. I'd sold quite a lot of shares in Norway, and traded quite a bit on NASDAQ via a US brokerage account (in 2000... yes, it got ugly; thankfully not that much money), and had income from both UK and Norway split between employment and contracting in the same tax year. And transfers back and forth between my UK, US and Norwegian accounts... To make it more annoying, UK and Norway have different tax years (Norway follow calendar year, UK does not). And to be honest my record-keeping at the time was shoddy to the extreme.
So I wrote a letter to UK and Norwegian tax authorities where I set out the details of my income, assets and losses as best I could. I told them I had no clue how to accurately figure out exactly what was due (for the US it was easy because it was all losses that year; the US brokerage account was just relevant because it provided deductions for losses on my Norwegian taxes). Gave them a number each that I thought was close to correct. Filled in my tax returns with estimates (and explained in my letters that the numbers were estimates). Both just accepted my estimate with no arguments, and no requests for further documentation. No fines, or angry letters, or conflicting estimated tax calculations or anything, which was what I feared when I sent it all off.
A couple of years later, Arkansas wanted to know why I didn't pay them any tax on my income from that year. I called someone, explained the situation, and he just had me write a letter. Problem solved.
We're conditioned to fear the IRS because audits look horrible on fictionalized TV shows. In reality, I think you're right. The IRS is just a collection of people, and if you make an honest effort, the person on the other end isn't out to ruin you.
Yes, they are people, but if what happens to you depends on people, the end results can be rather unpredictable.
I'm in Abu Dhabi, where there is no income tax, so tax treaties aren't really helpful. As a result, salaries here are actually proportionally lower than they would be in a higher-tax country, which works out well for everyone besides Americans. The exclusion is helpful, but you can still end up with a substantial tax bill as well as having to be careful about how much time you spend in the US.
Assuming for the moment that the US isn't going to stop taxing expats on foreign income, I do think the exclusion limit is too low by about half. Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
And the limitations on time spent in the US are absurdly low as well. I'm an academic, so if I attend a couple of conferences there, I actually have to count the days left when I book a holiday to spend with my family. I have almost as many paid vacation days in Iceland as I'm allowed to spend in the US without forfeiting my bona fide tax home status, which is ludicrous.
You do pay taxes in (for example) Hong Kong. It's just not as a high as the US rate.
> Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
That would certainly make sense. Personally, I think a more thorough analysis of income sources is also in order: if you're genuinely working for a foreign company as a foreign employee, I think that should be treated differently than a wealthy person who is just avoiding US residency for tax purposes, despite the majority of their income coming from US sources.
Then you'd pay a proportionately lower rate for your US burden. The overall amount of tax owed should be relatively constant.
> I think a more thorough analysis of income sources is also in order
I suspect the issue here is the manpower required to do it and/or the potential for extra loopholes. Could I start a company in Singapore that just happens to derive all its income from US sources and has me as its sole employee? Taxing by amount makes a certain degree of sense in that regardless of shenanigans, if you get money at the end, we tax that money. (Though of course, we don't actually do this in the US with things like capital gains.)
If the country has no taxes, the foreign income exemption doesn't work. Also, it maybe doesn't work if you are going to get a job in Iran, Cuba, or North Korea...there are certain standards to meet.
There's a ~100k foreign income tax exemption and many countries have tax treaties with the US which bypass even that and give a US tax credit corresponding to the already taxed foreign income.
Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) and there's the additional burden of caring for and declaring your income to the US, most expats don't need to be involved with the home country aside from grousing about it and renewing their passport.
Check with your accountant for an authoritative take on the following, but since I happen to be right with a certainty approaching "Gravity exists" I'll write the correction here: There exist two tests by which you can qualify for the Foreign Earned Income Exemption. One is the physical presence test, which is automatically ruled in your favor (i.e. you are ruled to be a foreign resident) if you spend less than 30 days in a tax year physically in the US. The other is the Bona Fide Residence test, which is less of a deterministic question than physical residence. There's no limit to the amount of time you spend in the US every year as long as you meet the IRS examining officer's impression of someone who "clearly lives in a foreign country continuously for an indefinite period."
I've had years with upwards of 100 days in the US, and never had any problem with claiming Bona Fide Residence in Japan. As my accountant phrased it once: "If you've got only one refrigerator, and it's on, and it isn't in the US, then you're certainly BFR abroad."
For more on this scintillating topic: https://www.irs.gov/Individuals/International-Taxpayers/Fore...
That's the point. It means skilled American workers are less likely to work elsewhere, thus increasing the competitiveness of America by restricting the supply of skilled workers for the rest of the world. It might suck for individuals but as national policy it makes a lot of sense. Plus it raises more tax.
Taxing on residency rather than citizenship creates a bizarre system where if you're a millionaire you can enjoy all the benefits of being a British citizen, but you can be "domiciled abroad" in Belize, Seychelles, Monaco, or other tax havens.
Then you can be British enough to donate millions to a political party, receive a knighthood - but pay far less tax than a middle class office worker.
If you want to be taxed like a citizen of Seychelles, it makes sense to me that you'd be a citizen of the Seychelles and not any other country.
The British "non dom" system is unique to the UK and is not any particular feature of residency based taxation (which is how every country in the world works save America and Eritrea). And there are constant rumblings about abolishing it or reforming it. I suspect non-dom status will eventually go away, but residency based taxation will stay.
At any rate, no country other than America has any chance of implementing such a policy. To make FATCA work required one of the most draconian laws that's ever come out of a democracy. Most people don't understand it at all. The law says that every financial institution in the world must obey the USA. This is enforced by not only taxing US assets, but because many institutions don't have any US assets, forcing those that do to recursively apply penalties to all their trading partners who aren't in compliance. A big part of the cost of FATCA isn't even reporting Americans to the IRS. It's keeping track of every firm you trade with and whether THEY are reporting their customers to the IRS ...... and then violating your contracts with them by withholding payments until they fall into line.
I see a lot of people saying things like, well, the threshold is high enough that all I have to do is paperwork. Or "it doesn't seem so bad really". I find this to be naive. Here's what can easily happen next:
• The threshold is lowered. As expats have no meaningful representation or organisation as a group, taxing them is effectively free money.
• The FATCA recursive enforcement infrastructure is extended to mandate global compliance with other US laws, by making banks impose penalties on any company or person that Congress doesn't like. People get upset as they suddenly realise that US law now takes precedence over their local laws.
FATCA is literally a totalitarian takeover of the entire global financial system by America. They don't care if people have to violate local laws in order to obey. The view of Congress is that American law supercedes all local law. It's the formal establishment of a global American empire.
you are confusing country of residency with country where you earn your income.
if a millionaire lives in Belize, earns his money by having his money invested in Belize and pay whatever taxes Belize require, that law will give zero tax to the usa. it will just force that millionaire to give up citizenship.
now if he makes his money in the usa, then your point is invalid as you clearly don't understand the issue. also this is exactly what corporations do already and this law won't change a thing.
This seems hardly worth 'denouncing' American citizenship. Can you explain?
I feel like threads like these really illustrate the difference between someone on HN and the average person.
You aren't paying twice. That's the point. Assume the US has a 30% tax rate in your bracket. Poland has a 35% rate for that same bracket. Then as an American expat, you would pay 35% in taxes. If Poland had a 25% rate, you'd pay 30% (25 + 5) in taxes. You aren't paying 65% of your income in taxes. You aren't paying twice.
> On the most basic level - Poland has absolutely no "right" to any of that money.
Then Poland has the right to say you are no longer a Polish citizen that can take advantage of Polish embassies or move back to Poland at any time as a full citizen.
It seems perfectly sensible to me.
It's not sensible if none of your other coworkers have to worry about this and they're all foreign citizens as well. It's a stupid tax policy that is basically a shakedown.
And yeah, I'm not totally sure about your example. I'm quite certain that I would pay 30% of my income in Poland, and then US would want a further 30% of the remaining amount, IRS would not care that I have already paid income tax in Poland.
American citizenship has real benefits, especially if you're rich enough to pay expat taxes. The U.S. protects you and your property everywhere in the world. My dad was stuck in Yemen when the civil war there broke out. His hotel was shelled. That blue passport was his ticket out on a C-130.
I certainly wouldn't presume or preach to others with regards to how they view their country, however:
1. We (I'm an expat as well) pay little taxes to the U.S. because of the foreign earned income credit. The paperwork is onerous, yes. But it's not as bad as some make it out to be, unless you're in an exceptional income bracket.
2. A U.S. passport is a powerful thing. And as the OP mentioned, the benefits are real. We look after our own. http://www.passportindex.org/byRank.php
3. Many U.S. expats wouldn't dream of renouncing their citizenship, because it simply means more to them than that.
It's more than residency, it's identity. And it's something we pay into. Many Americans will tell you...they don't like a lot of taxes...but they /will/ pay taxes, and they expect everyone to. It's a "we're all in this together" bit. Even if you're abroad, and you're paying a paltry amount, you're still chipping in.
Just something many of us do.
This is the part that often (note: not always) leads to valuing an American higher than a non-American. I have real problems with that. 911 is virtually celebrated, while larger tragedies the world over are not. What makes an American soldier's life more worthwhile than a baby born with Aids in some African backwater? If you believe all the flag-waving, nationalism. Otherwise media.
And I get that small number of deaths is a tragedy, a large number is a statistic. That doesn't change the reality - a life is valuable no matter who's it is, and where that person lives.
I'm a citizen of the world. I was born in Africa, have lived in the US, and now live in Europe. I rate myself as no better or worse than anyone else on this planet, including Americans. Most of all I'm insanely grateful to not be American.
AFAICT most of the money isn't spent here, it's parked here as a hedge in case something goes south in the home country, usually in real estate holdings. The biggest effect I can see is that housing in the city is too expensive for the locals now so families are being driven out into rural areas.
It's not like federal income is an admission fee. Or a direct tax on something the citizen uses (like a toll road). You benefit just as much from the government building a VA hospital, AIDS research, or a US carrier stationed near Syria.
You don't suddenly stop being an American when you go live somewhere else.
Double taxation only exists in Aethopia and the US.
Read this blog: http://www.overseas-exile.com/
Protection? Yes, maybe that's the reason. To support the US military efforts and budget.
On a side-note: If I would applied to the US greencard, and then decided to move back to Germany, I would have to pay double income taxes. To Germany and to the US. You don't even need to be US citizen.
8.7 million abroad. 3,417 renounced citizenship.
Or, .039%.
I'm going to take a stab at this and guess that's some of the 1% right there who had millions stashed abroad. Maybe the tax law was painful to them, but for the rest, it's hardly a crisis.
The real question is how many people would like to give it up, but can't, because obtaining citizenship where they live is extremely tough and because the US is unusually vindictive towards people who try and renounce. They can even retroactively undo your renunciation if they decide you did it for tax reasons.
Seen from one angle, US citizenship looks a lot like modern slavery. You're born into it, it's difficult to escape, you get no benefit out of the relationship and no matter where in the world you run to your 'owners' will demand a slice of the fruits of your labours.
To address the "why should you keep US citizenship?" question: If you move abroad, you won't be able to get citizenship in the country that you reside in for a number of years (depending on where you go), and in many cases, your US citizenship is what makes it easy to get a work visa or residence permit in that foreign country in the first place. So, even if you actually intend to renounce your citizenship, you still have about 5-10 years of living abroad and dealing with the tax implications before you can become a naturalized citizen in the place that you move to.
I'm not trying to argue whether it's fair or unfair to impose the tax on citizens living abroad, just that the logistics don't make the proposal of renouncing ones citizenship so simple.
We don't get any real benefits abroad, and we get charged for everything. Let's say you need something notarized - many places won't accept a foreign notarization, which means you have to go to the embassy. You know how your bank will usually notarize documents for free? The embassy charges you $50 - per signature.
Want to renounce your citizenship? That'll be $2,350.
You managed to end up in the wrong place and civil war breaks out? The US will make some effort to help you, but it wont' come free. U.S. law 22 U.S.C. 2671(b) (2) (A) requires that any departure assistance be provided "on a reimbursable basis to the maximum extent practicable.” This means that evacuation costs are ultimately your responsibility; you will be asked to sign a form promising to repay the U.S. government. (http://travel.state.gov/content/passports/en/emergencies/cri...)
And if you do renounce your citizenship, you risk not even being allowed back in the country to visit family. --People who have done so have been denied visas by the US supposedly because they aren't well enough established in their new country. And yes, this can even happen in the event of family emergencies. So giving up US citizenship could prevent you from visiting a parent or other family member on their deathbed - not something most people want to think about.
My biggest complaint is the paperwork. Besides FATCA, there is also the FBAR filing requirement. You need to report every foreign bank account that has more than $10,000 in it. This amount hasn't changed since the 70s.
This law may have been well-intentioned but it has some very toxic fallout for innocent people.
I've worn te uniform of the US military and paid my 'dues,' yet to imply that an overseas American is any less American is offensive. When I am outside the US, I do not consume a single taxpayer funded service. All consular services for the most part are self-funded. If the time comes when I need the Marines to come bail me out, send me the bill and I'll pay cash; otherwise the IRS can leave me the hell alone. I am a proud American, but I despise the Democrats who passed FATCA along with the class warfare rhetoric that led to it. To Democrats, overseas Americans are presumed to be money launderers, drug dealers or tax evader. I am neither yet the burden of proof is on me. Did you know when Insend money to the US, I must provide proof of the fund's origins? I have to prove my innocence in order to use my own money! FATCA is worse than the NSA -- it's a license to violate my financial sovereignty.
By the way, you speak of giving up citizenship like it's a small thing. Once you do this, you can never get it back.
'US Persons' in the context of this law is not the same as US citizens. It may include family members or business partners of citizens, or even of family members of former residents. It even affects many people who have no personal connection to the US, in some cases even people who have no right to enter the US without a visa if at all.
Fatca requires financial institutions to find and report any such US persons among their customers, and report their details to the US. This can be problematic, not just because so many US persons aren't even aware they are considered US persons, but also because in some countries banking privacy laws make it illegal for banks to record such information of their customers. These banks are now torn between following their local law and following US law. As a result, just offering certain services to US persons may carry a significant risk.
I wrote "the Average Joe cannot think", not "the Average Joe doesn't want to think". Other than that, I agree.
It's extremely hard for us to find a new bank outside the U.S., and inside the U.S. isn't easy either, since we're not a U.S. company, and do no business there. Thank god we're liquidating this company anyway.
Doing consulting work, I actually did some work for the bank that closed our account. And honestly, while I didn't get close to the departments that deal with FATCA, I can't say I blame them for closing our account. You should see how much of a headache all of the new regulations in the financial industry are for the institutions.
As far as I understand my rent details as well as bank accounts overseas are reported to the IRS. This extra work can be seen as a burden for both parties.
[0] https://www.irs.gov/Individuals/International-Taxpayers/Fore...
*edit grammar
Really a messed up law and messed up policy.
I do understand why our government did it: not good for the economy to have older people spend their social security money in a relatively inexpensive foreign country. I think the money laundering and anti terrorism arguments may just be a smokescreen. This may also be just our government throwing their weight around, bullying other countries.
I am still a little sad about our decision though. I think that life is more interesting living in different places, doing different kinds of jobs, etc.
BTW, I didn't want to move for financial reasons as much as wanting a low key lifestyle. There is something about Central America that makes me feel great just hanging around. Anyway, my wife and I live in the mountains of Central Arizona, and I also love our lifestyle here, so life is good.
As a former expat, this would have made my life significantly easier. The current U.S. tax code is appalling in its overreach.
As a business owner, my best strategy from a personal tax perspective is that my company makes no profit - it should all go to me as salary. In the past, that has put me in conflict with a non-US partner, as it didn't match his best strategy. And it means that "profit sharing" for employees doesn't make sense.
So US tax law costs me considerable money in compliance costs and fundamentally distorts the way I run my business, for no additional tax revenues to the US.
Fundamentally, residence based taxation makes more sense. It's more direct and easier to manage. People talk about these benefits of being a US citizen, as if I don't get services from the country where I live.