Why Are More Americans Renouncing Their Citizenship?
By Space Coast Daily // November 26, 2021
There are about nine million Americans living abroad. This figure changes every year depending on Americans who renounce their citizenship and those that leave the country to live in other countries.
The American government, under IRS rules, is required to create a list of all Americans giving up their citizenship every three months. In 2020, there was an increase of about 160% of Americans renouncing their citizenship compared to the previous year.
There is even a possibility that the number would have been higher if American embassies across the world did not remain closed due to the COVID-19 pandemic. With COVID-19 under control in most countries and economies resuming normal operations, we are likely going to see more Americans renounce their citizenship in the next couple of years.
Renouncing American Citizenship
Renouncing American citizenship is a very expensive and complicated process. A person renouncing their citizenship in the U.S. has to go through a number of interviews that are handled by a consular officer and part with a fee estimated to be around $2,350. This is quite expensive compared to other countries.
In addition, one has to be audited to see how they filed their tax returns for the last five years prior to renouncing their citizenship. The entire process can take a minimum of one year. After a successful application, one is required to submit a tax return the year after renouncing their citizenship to the IRS. This makes the process of renouncing US citizenship complicated especially for high net-worth individuals.
That notwithstanding, what is making these Americans renounce their citizenship? The U.S. is one of the biggest economies in the world. We expect people to have a modest life in the U.S compared to other countries. What would make Americans renounce their citizenship?
The Financial Impact
In 2016, a large number of Americans had threatened to leave the country and renounce their citizenship after the election of Donald Trump. However, the rate at which Americans have renounced their citizenship is not attributed to the results of their presidential elections.
The numbers started rising around 2013 when Barack Obama was still the president of the United States of America. Throughout 2013, the U.S. saw about three thousand Americans renounce their citizenship. This was more than two times the numbers witnessed in the previous years.
Some people have argued that the COVID-19 pandemic has had an impact on the number of people renouncing their American citizenship. This is, however, not the case. The numbers witnessed in the last year started way before the pandemic hit America and the rest of the world.
A bigger percentage of the Americans renouncing their citizenship comprises people that are already living in other countries. Most of these people blame counter-terrorism and anti-money laundering techniques employed by the American government. This makes it quite expensive to keep American citizenship.
Foreign Account Tax Compliance Act
The American Congress passed a Tax Compliance Act that requires financial institutions to generate reports on all the assets that holders of the American green card and American citizens have in foreign countries.
The main aim of this law is to ensure that the American government keeps tabs on the assets belonging to all its taxpayers. In addition, it strengthened the country’s anti-money laundering laws, making it difficult for Americans to engage in some financial activities.
This law has been seen as a major contributor to the rising numbers of Americans renouncing their citizenship. Before the law was passed, Americans in foreign countries ignored or did not report on what they owned in foreign countries since the American government would not easily know that they were non-compliant.
This does not mean that they were avoiding taxes. They were simply doing something different but still living by the American laws. This new law made it difficult for Americans, who would otherwise live in other countries and invest in them, to keep their American citizenship. Most of them have gone on to renounce their citizenship.
Finally, most Americans live in fear of an IRS audit. This has forced some of them to seek refuge in other countries. In addition, all Americans living abroad, whether they have assets in the U.S. or not, or whether they earn income in the U.S. or not, have to submit a tax return annually to the IRS.
This is a burden to most of them and has contributed immensely to the rising numbers of Americans renouncing their citizenship.