Figures recently released by the US Treasury have highlighted that a record number of American expatriates chose to renounce their citizenship in the first quarter of 2015.
American expats living outside the US now total over 7.6 million. In the first three months of 2015 alone 1,335 expats chose to give up their passports, nearly 40% of the 3,415 Americans who renounced their citizenship in 2014. This increase can be directly linked to growing tax regulations for Americans living abroad including the implementation of the Foreign Account Tax Compliance Act (FATCA) last year which requires banks to report details of all accounts held by US expats to the US authorities. If banks fail to disclose information, or they mistakenly give the wrong details, they could face massive penalties.
No escape from filing...
For US expats there is no escape from filing US tax returns. No matter where they reside in the world, Americans earning more than $10,000 per annum are required to file their taxes, even though more often than not they will be required to pay nothing, or only a minimal amount in tax, because of the foreign tax credits they receive.
Enforcement of FBAR
US tax filing has only been further intensified this year as the IRS and Treasury have been actively enforcing the Foreign Bank Account Report (FBAR), which requires all US citizens regardless of their income to file tax returns if they hold one or more foreign accounts totaling more than $10,000. Failure to do so can result in hefty fines of up to $10,000.
Expats facing a restriction of services
The fear of penalties by the United States has increasingly led many UK banks to restrict the services available to expats to the point that some banks are even refusing to allow US expats to hold accounts rather than have to comply with the exhaustive demands of FATCA. Such restrictions have only served as an added incentive for expats already contemplating renouncement of their U.S. citizenship.
Renouncing citizenship - things to consider
Renouncing citizenship is a very big step however and should not be considered lightly. If you renounce your US citizenship you give up all legal rights of being a US citizen and can only visit the United States for a maximum of 90 days a year. It also does not come cheap; the fee has recently quadrupled from $450 to a costly $2,350. In addition, if you owe money in taxes to the IRS prior to renunciation, this does not disappear, you will still be required to settle your tax bill.
Although filing US taxes as an expat can seem complicated and stressful, it isn't as bad as it first appears and certainly needn’t drive you to consider renouncing your US citizenship. To talk to us more about expat tax services and how we can help you to keep Uncle Sam happy please contact us.