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Should You Renounce Your U.S. Citizenship?

For some people, the best tax strategy is simply to pack up and leave.

That is the lesson from the disclosure that Eduardo Saverin, the 30-year-old billionaire who helped found Facebook, FB -2.25% has renounced his U.S. citizenship to become a resident of Singapore.

The Southeast Asian city-state has no capital-gains tax and its top income-tax rate is 20%—compared with rates of 15% and 35%, respectively, in the U.S.

According to his spokesman in New York, the Brazilian-born Mr. Saverin, whose family moved to the U.S. in 1992 and who became a citizen here in 1998, made the move for reasons other than taxes.

Are you thinking of following Mr. Saverin’s lead? Here are some considerations.

Get ready for questions. Expatriation involves an exit interview with a U.S. official, usually abroad—although not always in the host country.

You need somewhere to go. How to find a new home? Some countries, such as Ireland and Italy, often welcome relatives or descendants of their citizens—but don’t always offer tax advantages. In other nations you must have a stronger argument, such as a big investment there.

You might owe an exit tax. U.S. citizens who expatriate are treated as though they sold all of their property the day before they renounce, even if they will continue to own it and pay property or other taxes.

You will have to certify that you have been tax-compliant for the last five years. The upshot: Expatriation is a bad strategy for coping with past noncompliance.

Your heirs could get a big tax bill. The U.S. heirs of wealthy taxpayers who renounce their citizenship usually owe inheritance tax equal to the U.S. estate tax on assets left to them by the expatriate. (This doesn’t apply to spouses who are U.S. citizens.)

You might find travel more complicated. World-wide travel might require getting more visas, Fragomen’s Ms. Weintraub notes, and you might not be able to re-enter the U.S. without one.

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