- 1 US Citizen Going Offshore Permanently?
- 2 No One Likes to Pay Tax
- 3 Are you a Covered Expatriate?
- 4 The Covered Expatriate Taint Follows You
- 5 US Citizen Going Offshore & Exit Tax on Foreign Pension
- 6 Unwinding the Expatriating Act?
- 7 Second Citizenship and MORE Tax?
- 8 GILTI for US Citizens Going Offshore
- 9 Golden Visas: CBI vs RBI
- 10 Interested in Expatriation from the U.S.?
US Citizen Going Offshore Permanently?
Are You Going Offshore Permanently To Protect Wealth & Avoid Tax: It sounds tempting, right? Just throwing caution to the wind, giving up your US Citizenship, and relocating offshore to avoid the clutches of the IRS, protect wealth — and of course, avoid tax. For some US taxpayers — especially those who already reside overseas or already have dual-citizenship by lineage — it will have been the right decision. But for others who were unsure from the get-go — only to be goaded into expatriation by dreams of forming corporations in far off lands in hopes of avoiding tax — it will have been a bad decision. And, when the allure of wanderlust and being an offshore wanderer wears off — the expatriate is left (much) worse for the wear. Let’s review some of the basics of US citizens going offshore to protect wealth and avoid tax.
No One Likes to Pay Tax
For starters, it is very common for Taxpayers across the globe in general to want to avoid as much tax as possible — this is a common thought process. But, with the availability of the internet comes an abundance of false information about the idea of expatriating from the US and whisking away offshore, inverting your business and becoming a foreign person without any US tax consequence. And, much of the information found online is outdated and pre-dates the TCJA. With issues such as Exit Tax, GILTI, and false prophecies — it is important for the US persons considering going offshore permanently (or obtaining second citizenship) to understand the ramifications and tax implications of making such as leap. You should always consult with a Board-Certified Tax Specialist before making this type of jump.
Are you a Covered Expatriate?
If you are a US Person who is a Long-Term Resident or US Citizen and you want to go offshore for tax benefits or to protect wealth — US tax implications will follow, until you formally expatriate (e.g., relinquish permanent resident status or renounce citizenship). Formal expatriation is a very serious undertaking — especially for US Citizens — in which a person is no longer considered a US person. There may also be significant post-expatriation tax consequences — for example, if the person maintain investments in the US, they will generally have to pay 30% tax on FDAP.
The Covered Expatriate Taint Follows You
If you are a covered expatriate, you may have significant tax consequences at the time of exit. Sure, you could try to obtain a bond to avoid immediate payment, but then you have to pay for the right to do so — and the fees to hold that type of bond are expensive.
US Citizen Going Offshore & Exit Tax on Foreign Pension
Mark-to-Market gains are just one part of expatriation. Even if you do not have market-to-market gains, you may have a significant “deemed distribution” of your foreign pension, which may result in significant exit taxes.
Unwinding the Expatriating Act?
Second thoughts about expatriation after the fact? Want your US Citizenship Back? Sometimes, living overseas is not all that it is cracked up to be (The grass isn’t always greener). Other countries have other tax rules and other complications you may not have considered. Once it’s done — it’s done. You have to get back into line with everyone else — and since you had citizenship and relinquished it — it may be even harder to get citizenship again.
Second Citizenship and MORE Tax?
Just obtaining a second citizenship does NOT reduce tax or protect wealth or reduce tax. In fact, it can increase taxes since many countries have their own set of taxes (even for non-residents) such as the wealth tax. In addition, several other countries have strict limitations when it comes to estate planning and lineage for wealth transfers.
GILTI for US Citizens Going Offshore
Some Taxpayers believe if they just move overseas and take up residence in a foreign country — they are safe from US Tax, but that is not correct. On the individual tax front, the US taxes individuals on their worldwide income — so just relocating overseas will not achieve the desired tax benefits. From a corporate perspective, there is GILTI. The term GILTI refers to the Global Intangible Low-Taxed Income and results in a potentially significant tax implication for US persons who own controlled foreign corporations. While Domestic Shareholders of CFC catch a break, individuals have a significant tax consequence. And while GILTI Taxes for individuals may be limited by making a 962 election — the process of completing the forms each year can with a 962 election be daunting. Be sure you are getting proper tax advice before moving offshore.
Golden Visas: CBI vs RBI
There are two different types of Golden Visas: Citizenship-by-Investment and Residence-by-Investment. Golden Visas require a serious investment. In addition, they are time-intensive and not all GV programs operate the same. Some require more investments; other require an annual residence requirement — and some limit the ability utilize local education and medical care. In other words, it is crucial to carefully evaluate the Golden Visa you want to pursue before pursuing it.
Interested in Expatriation from the U.S.?
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