In the last several years, a “record” number of Americans abroad have been giving up their passports:
That’s supposedly due to the demands of the Foreign Account Tax Compliance Act, known as FATCA, a US law enacted in 2010 to fight tax evasion by forcing foreign banks to share information about accounts they hold for US citizens. Those requirements were an extra hassle for foreign banks, prompting some to stop doing business with Americans, and each year, attorneys and accountants who work for expats use the rising annual number of renunciations to urge the law’s repeal.
But this is the danger of taking statistics out of context: 99.83% of American expats haven’t found the new law onerous enough to lead them to abandon their nationality. If you take into account that there are about 6.5 million Americans living abroad—and that’s a low estimate—the US has seen just .17% renounce citizenship in the four years since the law was enacted, and certainly not all of them for FATCA-related reasons. In other words, this is a tempest in a teacup.
Unlike citizens in other countries, Americans pay taxes on income earned abroad, minus significant credits for any taxes paid to a foreign country. Until FATCA was passed, banks in many countries refused to talk to American tax collectors, which facilitated tax evasion and money laundering—last year, the IRS estimated some expats owed some $40 to $120 billion in unpaid taxes. The new law demanded that any financial institution doing business in the US provide account information to tax collectors, or face a 30% tax on its earnings.
Among the renouncers are people like Eudardo Saverin, the Facebook founder who ditched his passport for Singapore residency to avoid paying taxes on his IPO billions; and bitcoin investor Roger Ver, who renounced his US citizenship to avoid taxes and set up a business to help others do the same. Ver has been in the news lately for his vociferous complaints after being denied a travel visa to the US. Singer Tina Turner also renounced her US citizenship for tax reasons in 2013, becoming a Swiss citizen.
But some of the renouncers are also so-called ”accidental” citizens, people living abroad with dual citizenship thanks to an American parent. While they previously might have simply ignored US tax law, now more are officially renouncing citizenship to avoid the financial hassle.