Wednesday, February 10, 2016

Why so many Americans are renouncing their citizenship

It's interesting to read that record numbers of Americans living in Canada (and also elsewhere in the world) are renouncing their citizenship. This is mainly a result of the recent US law known as the Foreign Account Tax Compliance Act (FATCA), which requires financial institutions around the world to disclose much more information about their American customers than before.
So, these are not proverbial rats leaving a sinking ship, or even political ideologues fleeing a possible Trump-led dystopia. They are essentially long-time tax evaders, who object to paying taxes on at least some of their non-US assets.
The USA is one of the few jurisdictions in the world that taxes people based on their citizenship rather than their residency. In general, Canadian taxes are slightly higher than American taxes, and so (due to the long-standing double taxation agreement between the two countries) most Americans living here do not actually have additional US taxes to pay. But there are differences in the tax codes of the two countries, including the treatment of capital gains and estate taxes, which might result in extra taxes payable. As much as anything, though, I think that many people are looking to avoid having to file American tax returns, which are incredibly complex and onerous, whether they result in higher taxes or not.
As you can imagine, the US has made the process of cutting loose as difficult as possible, hugely increasing processing fees (from zero before 2014 to $450, and then to a mind-boggling $2,350 last year), and imposing increasing hurdles and delays (the whole process may now take up to a year). US officials are quite up-front about admitting that the process is being made deliberately hard in order, as they say, "to permit individuals to reflect upon their decision". It is now so costly and difficult to become non-American here in Canada that many are travelling abroad to do the deed. But, nevertheless, a record $4,279 Americans renounced their citizenships last year, a 43% jump over 2014.
This is all kind of embarrassing for the States, and not something they like to talk about. It does make one wonder if, by bringing in laws like FATCA, they are not cutting off their nose to spite their face.

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