Thinking of renouncing your American citizenship? There’s so much to consider when it comes to renouncing your US citizenship especially concerning taxes.
How can you give up your US citizenship?
A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship:
- appear in person before a U.S. consular or diplomatic officer,
- in a foreign country at a U.S. Embassy or Consulate; and
- sign an oath of renunciation
U.S. citizens can only renounce their citizenship in person, and therefore cannot do so by mail, electronically, or through agents.
How much does it cost to give up US citizenship?
The fee to renounce US citizenship is $2,350. It’s been significantly increased in recent years.
What happens if you renounce your US citizenship?
You will no longer be an American citizen if you voluntarily give up (renounce) your U.S. citizenship.
Will renouncing my US citizenship automatically cancel my tax obligations?
Renouncing your U.S. citizenship will not automatically cancel your tax obligations. Prior obligations remain, so you would only be a non-resident on an ongoing basis. You must notify the IRS of the change in your status by filing Form 8854 and then filing a copy with the Department of Treasury as well.
You will be treated as a U.S. citizen for tax purposes until you file this form. The same rules apply to green card holders. You must file the form as soon as possible after you renounce your citizenship.
U.S. citizens and green card holders are obligated to report their worldwide income, even if they live outside the U.S. The act of expatriation does not terminate your obligation to file a U.S. tax return and report all your worldwide income. You need to be tax compliant for the past five years and file form 8854.
Failure to do so means you will be considered as a covered expatriated (subject to an “Exit Tax”, which is a tax on the deemed disposition of all assets, tax on gifts to U.S. persons and others) and it could lead to an audit. There are exceptions where no exit tax needs to be paid.
How long does it take to renounce US citizenship?
Your Loss of Nationality application and supporting documents will be forwarded to the Department of State in Washington, D.C. for consideration and adjudication, a process that may take between 3-6 months.
How much is the renounce US citizenship exit tax?
It is the IRS’s last chance to tax you. The Exit Tax is computed as if you sold all your assets on the day before you expatriated, and had to report the gain. Currently, net capital gains can be taxed as high as 23.8%, including the net investment income tax.
Can I renounce my US citizenship and never file taxes?
Yes and no, you can renounce your US citizenship but be aware that renunciation may have no effect whatsoever on your US tax obligations. Upon renunciation you need to fill in form 8854 that asks you clearly to state that you have filed all your taxes. If you aren’t compliant you might be able to renounce.
But the IRS will not let you go until you have filed up a number of years back until the date of renunciation. There are cases of people renouncing and still owing tax. Worst of both worlds. Also (in a limited number of cases) you might have to pay exit tax upon renouncing.
Are there renunciation amnesty programs?
There are amnesty programs in place to help you become tax compliant without fines and penalties.
There are currently various voluntary disclosure schemes, such as the Streamlined Procedure and the Relief Procedure. Both schemes have as yet no end date, which means that it is not known when these schemes will end.
We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother.
When we heard about the US tax system for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fines or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.
That’s why we started this initiative to help people from all over the world by providing proper information about the US tax system to avoid unnecessary panic, and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your tax obligations.
Americans Overseas can advise you which renunciation program is best for you and inform you about the renounce US citizenship tax implications. If you have questions you can contact us at Americans Overseas.