The U.S. national debt is at approximately 19 billion USD, and as a result of the United States’ monumental debt, the federal government feels the need to tax their citizens for all incomes generated. The United States and China are the only countries in the world that tax their citizens worldwide on their income generated. In 2015 alone there was a 20% increase in American citizens renouncing citizenship at 4,279.
As of 2010 the Foreign Account Tax Compliance Act (FATCA) was signed into law to combat and deter American citizens from hiding assets offshore. Since 2010 The U.S. federal government has ramped up its tax enforcement worldwide to combat tax evasion. The taxation paperwork that is required to comply with U.S. tax regulations requires a significant amount of time and patience for the average individual. Many Americans living abroad are already feeling the financial strain of double taxes, but now are also left helpless by on their own and are now having to seek out expensive professional help to follow U.S. tax compliance. All Americans have to report foreign banks accounts that exceed $10,000 USD. Foreign Banks are now facing arduous penalties if they do not comply with U.S. law. These penalties have lead to a majority of foreign banks rebuffing to provide bank accounts for American citizens because of the risk involved. Now American citizens living abroad are left without checking and savings accounts.
Swiss Banks have openly admitted to U.S. government officials that they have aided the process for American citizens to hide their foreign assets. There are currently 7.6 million Americans living abroad. The United States federal government has calculated that increased enforcement could raise tax revenues by 800 million USD. We are now seeing more and more wealthy Americans renouncing their U.S. citizenship to pay lower taxes overall. Technically this action is still also illegal by attempting to avoid paying a tax bill, and tax officials could still come to collect on back taxes.
The simple fact alone that the U.S. fee to renounce ones citizenship has risen by 422% from $450 USD to $2,350 USD. This fee is 20 times the amount of the average renunciation fee of other countries worldwide. The U.S. is creating troublesome financial situations for many of its citizens because they now need 5 years of compliance with the IRS to even consider renouncing their citizenship. Even after the fee increased in price, Americans are still renouncing their citizenship at new levels. Foreign banks have to follow the FBARs and citizens are also required to fill out Form 8938 in order to avoid penalties.
Since Super Tuesday (March 1st) when 11 of the 50 states in the United States vote for their respective parties’ candidate, I have researched on GoogleTrends at the search query of “Move to Canada”, and the interest over time has shot up to unprecedented levels since the emergence of Republican nominee Donald Trump. Even though the renunciation of citizenship is a irreversible decision we are seeing more and more individuals interested in pursuing the path of renunciation. Personally, I feel that the current tax regulations and restrictions are negatively impacting globalization as whole and most importantly are reducing the amount of foreign banks that can conduct business with Americans living abroad.