By Cathy Brown
A decade ago, a mere 500 or so people gave up their US citizenship per year. In 2013, that number soared to almost 3000. This increase did not exactly come about gradually, either – it came as a sudden spike. Why?
Let’s go back to 2008, when federal prosecutors accused the Swiss bank UBS of helping wealthy Americans hide their money tax-free in overseas accounts. This was a huge case with a lot of consequences – indictments, fines and prison time for many involved.
Congress wanted to be certain it didn’t happen again. During the economic recession, lawmakers saw a chance to draw in large sums of money estimated in the tens of billions) and stop tax cheats at the same time.
Fast forward to 2010, and Congress passed the weighty Foreign Accounts Tax Compliance Act. The law affects every foreign bank that does business with the U.S. And not just banks: It also applies to retirement accounts, mutual funds, and more. It made it so that all holdings by US citizens, determined by very specific criteria, had to be reported directly to the US government.
Many foreign banks saw the criteria of the new law and decided that the regulations would be a massive headache with serious implications if they did not follow the law to the letter. Many of them decided to be done with American account-holders – it just was not worth it. Many Americans, especially those in Europe, almost overnight had their accounts canceled…and had an incredibly difficult time finding another overseas bank that would take their money.
Many Americans overseas are not using foreign banks to hide money or to evade taxation. They simply live abroad and use their ‘local’ bank to pay their local bills in the place they now call home.
Another factor frustrating many US citizens living abroad is the fact that the US taxes Americans no matter where they live. The US is one of the few countries in the world that does this. A Spaniard living in Canada would not be expected to pay taxes in Spain – he would pay taxes in Canada. Many Americans end up paying double – where they live abroad, and also to the US.
Renouncing US citizenship is an effective, albeit extreme, measure to release oneself from the hold of the US government. It is not an easy process – it involves lots of interviews, paperwork, and legal proceedings. But more and more expats are finding this option less of a headache than continuing to jump through the hoops of the increasingly oppressive US government. In Switzerland, so many people want to renounce their citizenship that the U.S. Embassy actually has a waiting list.
Brian Dublin, a businessman from the US who lives in Zurich, Switzerland, explains: “I want to be clear: It’s not about a dollar value of taxes that I don’t want to pay. It’s about the headache associated with the regulations, filing in the U.S., and then having financial institutions in the rest of the world turn me away.”
Even with a dramatic increase of Americans renouncing their citizenship, there is very little pressure to change the current regulations. There is nobody in Congress who specifically represents Americans living overseas and their unique concerns. Government officials are in general convinced that this law is succeeding at catching tax cheats…and that this is worth the side effect of losing a few thousand citizens every year.
What would it take for you to give up your citizenship? Have you ever considered it? Do you know someone who has done it? Share your opinions or stories with us by leaving a comment below!