The United States of America is the most popular destination for global immigration, and for good reason - the economic and social opportunities in the U.S. are nearly unparalleled. However, holding U.S. citizenship may cause headaches for some of the estimated 9 million U.S. citizens living abroad. For some U.S. citizens abroad, these frustrations might be enough for them to consider renouncing U.S. citizenship:
- Lack of ties or identity to being American, particularly amongst citizens who have lived in other countries for many years (or even their entire lives);
- Political frustrations and a desire to make a political statement;
- Obligations to their country of residence which create conflicts with U.S. laws; or
- Frustration with taxation and reporting requirements in the U.S.
It is important for citizens abroad to recognize that the act of renouncing their U.S. citizenship may not impact U.S. taxation or military service obligations. As well, it does not allow individuals to evade repayment of financial obligations (including child support) or prosecution for crimes committed in the United States which violate U.S. law.
Taxation in the United States
The United States is one of only two countries in the world that taxes on the basis of citizenship. U.S. taxation is applied to worldwide income, which means that U.S. citizens living abroad must still file annual U.S. tax returns even if they are paying taxes in their country of residence. This requirement adds stress and extra costs to tax filings, but also creates complications with tax and estate planning.
Although tax challenges are significant and can be costly, they should be manageable with assistance from qualified tax professionals. Renouncing citizenship for tax reasons is not permitted under the Reed Amendment, and may make you inadmissible to the U.S. Therefore, while taxes are a valid consideration it should not be the reason for renouncing citizenship.
U.S. citizens who decide to proceed with renouncing their citizenship should seek advice from a qualified tax professional, as there may be significant tax implications.
There’s a difference between “relinquishing” and “renouncing” citizenship. Relinquishing citizenship refers to when the citizen performs an “expatriating act” with the intention of relinquishing their U.S. citizenship. These expatriating acts are listed in Section 349 of the Immigration and Nationality Act.
By comparison, a citizen who renounces citizenship performs the expatriating act when they do the following voluntarily and with the intent to relinquish U.S. citizenship:
- Appear in person before a U.S. consular or diplomatic officer;
- In a foreign country at a U.S. Embassy or Consulate; and
- Sign an oath of renunciation and submit to an exit interview.
By renouncing citizenship, the person is also renouncing all of the rights and privileges associated with citizenship. An individual who renounces their U.S. citizenship must be a citizen of another country to avoid becoming a stateless person, and must be prepared to provide proof of this citizenship at the consulate. Renouncing citizenship is a final and irreversible act, and is not a decision that should be made lightly.
U.S. citizens cannot renounce their U.S. citizenship by mail, electronically, or through agents - it has to be done in person. Further, parents may not renounce the citizenship of their minor children because citizenship is a personal status. Minors that are 16 or older must demonstrate to a consular officer that they are acting voluntarily, without undue influence from their parents, and that they fully understand the implications and consequences of renouncing their U.S. citizenship. Minor children younger than 16 are presumed not to have the requisite maturity and knowing intent to renounce or relinquish their citizenship. U.S. law precludes parents or guardians of individuals with developmental or intellectual disabilities from renouncing the citizenship of individuals who lack sufficient capacity to fully understand the implications and consequences.
Once the renunciation process is completed, the individual may apply for a Certificate of Loss of Nationality. They must also file their final tax return and attach Form 8854 and prepare to pay “exit tax” (if applicable).
Pros and Cons
Renouncing U.S. citizenship is not an act to be taken lightly, and citizens should carefully weigh their options before deciding to renounce. As with any decision, there are a numbers of Pros and Cons:
- Simplified tax preparation and planning;
- Minimized or eliminated U.S. gift or estate tax obligations;
- Does not impact the ability to enter the United States to visit, study, etc (with the proper visa, if applicable).
- Loss of eligibility to vote in U.S. elections;
- Loss of U.S. government protections, including consular services;
- Loss of entitlement to enter the United States to visit, study, etc (although they remain admissible with the proper visa, if applicable);
- May be required to pay exit tax, which deems disposition of assets on the date of renunciation;
- Creates issues of statelessness for those without a secondary citizenship.
If you are considering renouncing your U.S. citizenship, contact Sisu Legal to schedule a consultation. It’s an important decision, and our team is available to guide you through the process.