Evidence is mounting that more US citizens are giving up their nationality because of an addition to the country’s tax system which means expats are being refused bank accounts.
Figures from the US Treasury show that a record 4,279 people gave up their US citizenship or long term residency in 2015, an increase of 20% on the previous year, which was also a record breaking year.
For example, in 2010 some 1,006 gave up their US citizenship but since then the numbers have risen every year and although the figures do not give reasons for doing so experts believe it is because of the country’s citizen based tax system.
The only other country in the world to have such a tax system is Eritrea in Africa. It means that all US citizens must file a tax return annually regardless of where they live and work.
On top of this the Foreign Account Tax Compliance Act (Fatca), a law introduced in 2012 which was designed to target overseas accounts held by wealthy Americans has added to the complexity of the situation.
Fatca expands the scope of what can be taxed, and places a burden on foreign banks to identify US citizens among their customers to US tax authorities. The penalty for failing to do so can be as high as 30% of all a bank’s dealings with the US.
As a result, ordinary Americans abroad are being denied access to basic banking facilities as banks would rather refuse US citizens’ than run the risk of hefty penalties. Foreign banks are also closing down accounts of people who may have been born in the US but left as a baby to live elsewhere.
But Nigel Green, chief executive officer of independent financial advisory organisation deVere, is urging people to look at all their options before taking the drastic step of renouncing their American citizenship.
“More Americans than ever are cutting their official ties with the United States. For the third consecutive year, a record number of people have handed back their US passports or green cards and it is widely recognised, even by Treasury officials, that this increase is largely due to the burden of Facta,” he explained.
“This highly controversial piece of legislation has had the unintended consequence of turning millions of hard working, law abiding Americans based outside the States into financial pariahs. Foreign financial institutions now routinely refuse to handle American clients even if they have been clients for years as it is too much trouble and too costly to comply with Facta’s onerous rules,” he said.
“Most Americans abroad are proud of their citizenship and indeed many find it an integral part of their identity when living overseas. Therefore, giving up citizenship is a distressing idea and something they wouldn’t do unless they felt there was no alternative,” he added.
He pointed out that there are several well-established, bona fide, compliant ways that US expats can mitigate the burden of FATCA. These include an additional overseas pension contract that’s specifically designed for US taxpayers with assets in their country of residence.