Should You Renounce Your Citizenship?
Would you renounce your U.S. citizenship if it meant you’d be sending less of your hard-earned dollars to Uncle Sam?
As Americans face higher taxes and stricter enforcement, a growing number of them are, indeed, deciding to turn in their US passports. As of 2013, 77% of Americans will pay higher federal tax rates because the cuts in Social Security payroll taxes expired when Congress passed its tax package on New Year’s Day.
But the wealthiest households face the highest tax increases. From 2009 to 2011, the number of expatriates, or those who renounced their U.S. citizenship, doubled to 1,781.
Nigel Green, CEO of deVere Group, which provides financial services for expatriates, said that since the start of this year, 48% more of his clients in January than in a typical month inquired about moving funds abroad and the possible tax implications of changing citizenship.
The income tax rate rose this year to 39.6% from 35% for individuals earning more than $400,000 a year and married couples earning more than $450,000.
The Tax Policy Center estimated that those who earn more than $1 million would pay an average of $170,341 more in taxes.
Green said there’s a tipping point for most people with regard to tax issues affecting their choice of location and citizenship. “If there’s only 10% tax [on income], no one would be leaving. But if there’s 90%, then most people would leave,” he said.
Federal taxes aren’t the only issue, though. Increases in state income tax rates factor into these decisions as well. Recently, California enacted Proposition 30, which raised state income tax rates to 10.3% from 9.3% for individuals making at least $250,000 and 13.3% from 10.3% for those earning at least $1 million. Golfer Phil Mickelson publicly voiced his concern over the tax increases and threatened to leave California because of the higher rates.
Famous Faces
In the first three quarters of 2012, more than 1,100 people left the United States, according to the Federal Register, which tracks Americans who renounce their citizenship. (The Federal Register doesn’t make note of why these people give up their citizenships; we can only guess there are financial considerations in many situations.) Among them, one of the most high-profile examples was Facebook co-founder Eduardo Saverin, who filed to relinquish his U.S. citizenship in September 2011; Facebook had its initial public offering in May 2012. Saverin, a Brazil native, had already been living in Singapore for three years after emigrating to the U.S. in 1998. He could reportedly save as much as $100 million in taxes because Singapore does not tax capital gains.
Saverin isn’t the only famous renunciation. Singer and socialite Denise Rich also gave up her citizenship last year under her maiden name, Denise Eisenberg. She is well-known as the ex-wife of former international fugitive Marc Rich, a commodities trader who was indicted on 50 counts of wire fraud, tax evasion, racketeering and other charges. But on his last day in office in 2001, former president Bill Clinton pardoned Rich. Reports claimed that Eisenberg gave up her citizenship to be closer to her long-time partner, an Austrian citizen. Austria also has tax benefits for nationals who live abroad for more than half the year.
Chinese kung fu star and actor Jet Li held American and Chinese citizenships, but dropped both in 2009 in order to be a citizen in Singapore. (Singapore prohibits dual citizenship.) In interviews Li indicated that he chose Singapore because it was free from paparazzi and provided language opportunities for his children.
Most recently, actor Gerard Depardieu made headlines for renouncing his French citizenship to become a Russian citizen in order to avoid France’s proposed 75% tax on earned income above $1.4 million. Russia has a flat 13% tax rate.
