Global Residence and Citizenship Handbook. Christian H. Kälin

countries do not even allow you to give up your citizenship unless you have another one. For a good discussion of statelessness, see Stiller (2011)

      ³³For example in China, Malaysia, the UAE and many other countries, there are minority groups which are resident there but are prevented from acquiring citizenship of the country they live in

      ³⁴In some Swiss Cantons for example, you have to pass an “integration” test, which means that you may need to learn some Swiss history and other things deemed useful to qualify for the privilege of applying for Swiss citizenship. In some Asian countries, if you are not of a particular ethnic origin, your chances of ever being granted citizenship are close to zero. In most Muslim countries you need not apply if you are not Muslim

      ³⁵Ireland for example

      ³⁶For an extensive overview see Bauman (2009) and www.henleyglobal.com

      ³⁷Henley & Partners constantly monitor and evaluate residence and citizenship programs around the world against a number of criteria

      ³⁸For an in-depth discussion of these options see Part IV

      ³⁹For example, Bulgaria, Cape Verde, Grenada, Nauru, the Seychelles, most South American countries, and others

      ⁴⁰Montenegro, for example, granted citizenship to the controversial former Thai Prime Minister Thaksin Shinawatra on the basis of a mere promise to invest in the country

      ⁴¹Panama, under its retiree residence program

      ⁴²Tonga and a couple of African countries

      ⁴³For more information see the website of the Ministry of Interior of Iceland http://eng.innanrikisraduneyti.is/laws-and-regulations/english/citizenship/nr/27049

      ⁴⁴As has been the case in Costa Rica and other Latin American countries for many years

      ⁴⁵The information is based on the author’s own interpretation of citizenship legislation in the relevant countries; for a definitive assessment of the legal situation and possible exemptions, it is necessary to seek legal advice from a specialist in the relevant country

       3

       Giving up US Citizenship or a US Green Card

       By Dr. Marshall J. Langer and Professor Denis Kleinfeld⁴⁶

      Chapter Summary

      Some US citizens dislike the amount of tax they must pay. This has led to an increase in the number of citizens who consider giving up US citizenship even though punitive exit taxes have been in place since 2008.

      According to the Treasury Department there were a record number of US residents expatriating in 2015, up from 2,899 in 2013 to 3,415 in 2015 at the time of publication. Prior to 2010, the recorded number of expatriates was always well below 1,000 persons.

      The exit taxes are deliberately punitive, and have been designed specifically to prevent the highest taxpayers from leaving by removing virtually all of the financial benefit gained by doing so.

      Giving up US citizenship is a complicated business, and a wide range of factors must be taken into account, including residence, domicile and citizenship, marital status and the status of beneficiaries, sources of income and location of assets, and the timing of any move. You must also acquire another citizenship to replace the one given up.

      The exit taxes do not apply to everyone who gives up US citizenship; there are two key tests to determine whether you are caught by it. The first is based on income tax liability over the past five years and the second is based on your net worth. There are exclusions for certain items when calculating your net gain, and gains and allowable losses are taken into account.

      Once you have relinquished or renounced US citizenship, and paid exit taxes if necessary, you must still take care not to fall back into the US tax pool by spending too many days there.

      Depending on your new passport, you may need to obtain a visa to enter the US again. There is also a significant tax on gifts or bequests that you subsequently give to any other US taxpayer once you have left.

      The final figures for 2015 were not available at time of publications, but it appears that it will be another record breaker. The total number of expatriations through the first three quarters of 2015 were 3,221, and only another 195 were needed to set another record high for the third year in a row.

      Taxation is not the only reason why Americans give up US citizenship or terminate long-term US residence, but it is frequently considered by wealthy individuals who are already living abroad or plan to do so permanently. Unlike citizens of France, Germany, Switzerland, the UK and other countries, US citizens remain almost fully subject to US income and death taxes even if they never intend to return to live in America. Despite tax treaties, they are often subject to at least some double taxation.

      Thousands of wealthy British residents have already left Britain to avoid the maximum income tax rate which has been as high as 50% and is currently 45%. They have tried to escape British taxes by changing both their residence and their domicile. They can retain their British citizenship and their British passports which are also EU passports. Many wealthy Americans do not yet fully realize that they may now be facing combined federal and state income taxes that exceed the rates that have caused people to leave Britain. In some cases, the combined corporate and individual income taxes on dividends received from US corporations may exceed 60%.

      The US applies all eight tentacles of the ‘tax octopus’. To escape US income, gift and death taxes, you must consider each of the eight tax tentacles:

      •Residence: you cannot have a green card, and you must avoid meeting the substantial presence test by spending too many days in the US

      •Domicile: you must terminate your domicile in any US state or territory

      •Citizenship: you cannot be a US citizen since the US taxes its citizens on a worldwide basis

      •Marital status: you must take steps to eliminate the application of any “community property” rules under which each spouse is entitled to a half interest in most income and property acquired by the other spouse during the marriage

      •Source of income: you must eliminate or minimize any taxable income from US sources

      •Location of assets: you must eliminate or minimize holding any assets that would be subject to federal or state gift or death taxes

      •Timing: the timing of various acts must be carefully considered (for example, you might sell your family home before you leave but try to postpone receipt of foreign-source income until after you go)

      •Status of beneficiaries: several special factors must be considered if your spouse or any of your other intended beneficiaries will remain US citizens or residents

      •While the percentage of the total population of US residents actually expatriating is quite small, the fact is that the reported numbers only reflect those officially listed by the IRS. This does not include residents who have merely left with no intention of returning but have not formally renounced their citizenship in the US. Many of those who have formally renounced their US citizenship or residence have done so since they were returning to a country in which they were born (such as South Korea) that does not permit them to retain another citizenship. Many countries permit dual citizenship, but some do not

      If you expatriate, the new US exit tax law enacted in 2008 aims to make you promptly pay an exit tax on most of your previously untaxed worldwide gains and deferred income. In those cases where this tax is permitted to be postponed, the IRS (Internal Revenue Service) makes sure that you cannot