Increasingly frustrated with high taxes and increases in their annual tax bills, more and more Americans living abroad are rescinding their US passports and opting for a permanent life overseas.
According to the US Federal Register, which coordinates the functions of the Electoral College on behalf of the Archivist of the United States, more than 1,100 American citizens renounced their passports in the first three quarters of 2012, leading to speculation that the overall figure for 2012 is likely to surpass the previous year’s total of 1,781. This may be more alarming for the United States government given the fact that the number of American’s who renounced their citizenship in 2011 was seven times higher than those who left in 2008.
There are currently an estimated six million US citizens living abroad and the vast majority of these are expected to pay annual taxes to the American government, despite the fact that they do not live in the country. The US is the only industrialized entity in the world to legalize taxation of overseas residents and many expats begrudge the fact that they are expected to pay taxes on income that was not generated on American soil. Expats who earn more than $400,000 a year and married couples who earn a combined income of more than $450,000 are expected to pay income tax to the tune of 39.6%, which represents an increase of 4.5% on last year’s rate of 35%. Those expats who earn the equivalent of more than $1 million will also be facing higher bills this fiscal year, with the increases in tax payable being in the region of $170,341, according to the Tax Policy Center.
A 2012 research study that was conducted by the Research Institute of Industrial Economics indicated that approximately 33% of US citizens who rescind their citizenship move to renowned tax havens such as Switzerland, Bahamas, and Singapore. However, Americans have been warned that giving up their US passports may come at a price and that they may later experience difficulties entering the US.
Famous US citizens who have already given up their right to US citizenship include Tina Turner, Jet Li, Denise Rich and Facebook co-founder Eduardo Saverin.
In a bid to prevent tax losses from Americans who rescind their citizenship, some American lawmakers are arguing that US citizens who give up their passports should still be liable to pay tax in the country for years after relinquishing their right to live in the US and should be permanently banned from ever reentering the country under a so-called “Ex-PATRIOT Act.”
For now, Americans who do wish to permanently give up their US passports will face financial penalties. Individual’s with a total net worth of more than $2 million are required to pay a 15 percent tax on capital gains above $641,000 as well as taxes on other assets at the rate of 39.6 percent.
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