Exit tax when renouncing US citizenship
If you are a US citizen and you decide to renounce your US citizenship this can still have substantial tax implications to you. The US imposes an ‘Exit Tax’ when you renounce your citizenship if you meet certain criteria.
Generally, if you have a net worth in excess of $2 million the exit tax will apply to you. This tax is based on the inherent gain (in dollar terms) on ALL YOUR ASSETS (including your home). You will also be taxed on all your deferred compensation—such as pensions at the time of expatriation.
The exit tax will also apply to you, even if your net worth is below $2 million, if you have not complied with your US tax obligations for the last five years. The $2 million trigger will not apply to certain individuals who are dual citizens at birth. But the tax will still be imposed if they have not met the five year tax compliance test.
Green Card Holders and the Exit Tax:
The exit tax is also imposed on green card holders who have held a green card for 8 out of the last 15 years (referred to as ‘long-term residents’). This can mean that green card holders who have not formerly surrendered the green card are ‘stuck’!!! They remain subject to US Income Tax but cannot afford to surrender the card because of the exit tax they will have to pay.