The United States Allows Dual-Citizenship, But is it Worth it?

Can A US Citizen Obtain Dual Citizenship, 5 Important Facts

Can A US Citizen Obtain Dual Citizenship

Just because second citizenship is allowable does not mean you should necessarily go down that path — unless that is your endgame strategy. While some countries such as Singapore do not allow citizens to be dual citizens of both Singapore and a foreign country — the United States does not prohibit US persons from having dual citizenship.  Whether a person is born into dual-citizenship acquired citizenship after the fact by way of lineage; residing in a foreign country and meeting the requirements — or through citizenship-by-investment for example, a person may maintain more than one citizenship. But, it is important to note that since the US follows a worldwide income tax model oftentimes this just means that until the US person formally expatriates and gives up their US citizenship — they may become subject to US tax along with foreign tax. While a person may qualify for the Foreign Earned Income Exclusion, Foreign Tax Credits or to apply for tax treaty benefits — this can lead to more headaches than initially thought. Citizenship by investment, let’s take a look at five facts before applying for second or third citizenship.

Dual-Citizenship Can Have Hidden Tax Implications

Even though the United States Government does not prohibit second citizenship, is having it really worth it?  While having a Plan B or even Plan B and plan C can be a way to bring you peace of mind for dealing with the unknowns of life, there can be hidden tax implications of having a Plan B. The main hidden tax complication is that once you obtain second citizenship and/or third citizenship you may have to begin paying tax in that foreign country on various types of income which may be different than the types of income you pay tax on in the United States — and there may not be foreign tax credits available to offset the additional income.

Are You Planning to Expatriate?

If you are planning to expatriate, it is important to evaluate the totality of the circumstance before just performing the expatriating act and giving up your US Citizenship. As a result of the IRS exit tax, some covered expatriates may have a significant tax liability at the time they relinquish their US citizenship. Therefore, if you are intending on obtaining second citizenship, you should not be under the misimpression that you are forced to expatriate in order to maintain second citizenship because the US government does not prohibit a US Citizen from having more than one citizenship.

Time and Cost of Second Citizenship

If you are considering second citizenship, it is important to also factor in the time and the cost of being a global citizen. Depending on where you want to obtain second citizenship and if you are obtaining it just to have another passport or if you have an actual intent to reside in the country, you should carefully evaluate the tax implications of being a citizen of that country — along with the whether or not the country has any treaty with other foreign countries as well, especially countries you may consider traveling to or residing in.

Annual Dual-Citizenship Requirements

Again, depending on which country you obtain second citizenship will also impact how much paperwork you may have to complete each to maintain the citizenship. In order to obtain certain second citizenship, you are required to maintain a significant amount of assets in the country — either by way of investments in local funds and/or real estate — and some countries require a significant amount of paperwork. 

Is it a Treaty Country with the United States

If the foreign country is a treaty country with the United States and especially if the Taxpayer formally expatriates — this may help the taxpayer obtain the ability to travel back to the United States at a later time because of the E-2 Treaty Visa. Even if that type of visa is not available — other types of users such as the tourist B1/B2 tourist visa or even an EB-5 investment visa may be available.

Does the Foreign Country Allow Dual-Citizenship?

It is very important to determine whether or not the foreign country the person intends on obtaining second citizenship allows for second citizenship. For example, Singapore does not allow for dual citizenship, so if a person has significant assets in Singapore such as a CPF for example, and wants to have both citizenships, that may not be available.  It may result in Singapore for example forcing the person to cash out their investments in Singapore, and since there is no treaty with Singapore — this may result in a significant tax implication for the person to pay both from the Singaporean side as well as the United States side.

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Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

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