The strict tax rules imposed by the US government are making foreign banks and financial firms unwilling to do business with American expats. For many the solution has been to hand back their passports and renounce citizenship.
The financial firms prefer not to have American customers because of the cost of complying with Foreign Account Tax Compliance Act (FATCA) rules, introduced in 2015.
Under FATCA, foreign financial firms must report financial and personal information about any accounts controlled by American customers to the US Internal Revenue Service.
Foreign financial firms who fail to report on their American expats customers can face fines and sanctions, such as exclusion from trading in the USA.
American expats must also file an FBAR form to let the IRS know about “all bank and financial accounts – including those with zero balances -if the total of all accounts on any day of the year exceeds $10,000,” David Treitel, managing director of American Tax Returns, told International Investment.
According to the IRS, the most recent data for the first three months of 2018 shows 1,099 Americans renounced their citizenship.
Expat groups blame the renunciations on FATCA and other tax laws and vow to keep fighting FATCA, as reported by International Investment.
Many are calling for a fundamental change in the US tax system away from taxing citizens wherever they live in the world to just those that live in the USA.
Under citizenship-based taxation, American citizens living abroad are obliged to file tax returns to the IRS every year, as well as certain other documents, such as Foreign Bank Account Reports. The requirement is life-long, no matter how long they live abroad, even if they were only in the US long enough to be born there.
Although the majority of expats not have to pay tax to the US if they have already paid that tax to the government of the jurisdiction in which they live, certain taxes that they are not billed for locally they may be expected to pay to the American tax authorities.