The Most Common Second Citizenship Tax Mistakes to Avoid

The Most Common Second Citizenship Tax Mistakes to Avoid

Common Second Citizenship Tax Mistakes to Avoid

When a US Person wants to consider obtaining second citizenship in a foreign country — or multiple countries — there are many moving parts to contend with. Oftentimes issues such as acquiring foreign properties, securing investments, and setting up the family abroad (School and Medical) understandably takes precedence. Still, one key issue that should not remain on the back-burner too long is understanding the tax ramifications. This is crucial, because especially in situations in which the US person has not formally given up their US person status by way of expatriation — acquiring second citizenship with a Golden Visa may subject them to taxes in both the Unite States and in that foreign country. Let’s go through some of the more common second citizenship tax mistakes we see in our practice that you should seek to avoid.

Speak with an Experienced Tax & Legal Specialist

There are many, many scams out on the world wide web on matters involving second citizenship, Plan B and going “offshore.” Individuals who are neither legal professionals nor tax professionals contrive imaginary expatriation scenarios in order to try to sell global entrepreneurs on this grandiose idea of obtaining second citizenship and leaving your tax worries behind. This is often not the case and in fact you may end up owing more tax if you select a country that has a tax regime different than the United States and thus foreign tax credits and treaty elections are unavailable. You should make sure to speak with a tax attorney who is Board-Certified and specializes in this area of tax law.

Securing Second Citizenship is Time-Consuming

Obtaining second citizenship in most countries is no easy feat. Having to jump through all the hurdles and loopholes to obtain second citizenship is a very time-consuming process. Likewise, it is important to retain a company that operates in a specific jurisdiction you are seeking. Oftentimes these companies will be licensed by the government of that specific country for obtaining citizenship purposes – being that obtaining citizenship means the country will issue a passport and there are always many requirements that must be met, even in the more lax countries.

Thinking You Will Not Owe US Tax

The United States taxes US persons on their worldwide income. Therefore, by obtaining second citizenship you should not be under the misimpression that you no longer owe US tax –– even if the income is generated in a foreign country. In fact, not only will you  now owe tax to the IRS – but you may owe additional tax as well in the foreign jurisdiction.

Now You Owe Tax in Two Countries

Here’s an example in which a person may end up owing significant more tax by way of second citizenship. The US person obtains second citizenship in Country “X.” Country X has significant inheritance tax, which is not something the US Federal Government has (US has “estate tax” which operates differently than inheritance tax). The US person passes away unexpectedly and has significant assets in this foreign country where they have second citizenship. Now, the foreign country tax levies a ginormous inheritance tax bill on portion of that wealth located in the foreign country and there are no foreign tax credits to offset in the United States – the country may also have strict estate passing rules when trying to transfer the assets to different family members.

Opening Foreign Accounts Before You Expatriate

If you are planning to get a second citizenship with the goal of expatriating from the US, typically a key motivating factor is to remove yourself from all the US reporting on international forms such as FATCA and FBAR. In order to keep these forms off the US radar, it is important to try to wait to open the foreign accounts until after expatriating from the United States so that there will be no overlap in which you were both a US person and had second citizenship in a foreign country in which you have already opened foreign accounts — which may now subject you to very US reporting requirements you are (presumably) seeking to avoid.

About Our International Tax Law Firm

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

Contact our firm today for assistance.