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Renouncing U.S. Citizenship: Pros & Cons

Sometimes, it is necessary for a U.S. citizen to renounce or give up their U.S. citizenship. Below we look at some of the pros and the cons to renouncing your U.S. citizenship. 

Pros of Renouncing US Citizenship

  • Tax Benefits:
    • You are no longer subject to U.S. tax on your worldwide income, so elimination of double taxation. 
    • Your U.S. tax liability may significantly reduce if you limit the amount of U.S.-sourced income that would be taxable.
    • You are insulated from U.S. tax changes on expats moving forward. 
    • Elimination of tax owing to the U.S. through common transaction and investment funds in your country of residence (sale of principal residence, non-U.S. mutual funds, privately held non-U.S. corporate interests, etc.). 
  • Foreign Bank Accounts:
    • It is easier to open a foreign bank account as a non-U.S. Citizen.
  • Investment Planning:
    • You can invest in the U.S. and plan to earn only earn capital gains and/or interest income, which is typically not taxed in the U.S.
  • Eliminating Filing & Expenses:
    • You are no longer subject to U.S. reporting and filing obligations and its associated legal costs.
    • You do not need to report any of your income to the U.S. government unless it comes from U.S. sources.
    • You are no longer subject to U.S. gift and estate taxes.
    • You are no longer be subject to expensive U.S. cross-border planning and legal advice. 
  • Easier to Plan with CFC, GILTI, and Subpart F:
    • If you renounce your U.S. citizenship and plan to create a foreign business, you can circumvent the issues of being a controlled foreign corporation, mismatch in U.S. and foreign country tax rules, Subpart F income, etc.

Cons of Renouncing US Citizenship

  • Expenses:
    • The U.S. government charges a fee of U.S. $2,350 to renounce (plus applicable legal fees).
  • Loss of U.S. Citizenship Benefits:
    • You cannot vote in U.S. elections.
    • You cannot have a U.S. passport or benefit from U.S. consular services.
    • You lose the right to work or live in the U.S. without a visa.
    • You lose the U.S. government’s protection abroad. 
    • You can’t get emergency evacuation if you’re in a war zone abroad. 
  • Harder to Travel to U.S.:
    • Harder to obtain a visa and/or travel to the U.S. because the U.S. has been constricting the available number of visas & the Reed Amendment allows the U.S. government to deny entry to someone who has renounced U.S. citizenship for tax reasons.
  • Tax Implications:
    • There may be no effect on your U.S. tax obligations – you have to be fully U.S. tax compliant before you renounce U.S. citizenship, so renouncing isn’t a way of avoiding past U.S. taxes.
    • If you are still earning a U.S.-source income that is taxable, the income is considered FDAP, with a general withholding rate of 30%.
    • If you were considered a covered expatriate at the time you renounced, then there are many lingering tax implications that they have to be aware of, especially if they plan on giving gifts to U.S. persons.
    • The foreign country that you plan on becoming a citizen of may have higher taxes. 
  • Deportation:
    • Renunciation of U.S. citizenship may not prevent a foreign country from deporting you to the U.S. in some non-citizen status.
  • Military & Financial Obligations:
    • You may still be subjected to your U.S. military service obligations.
    • You may not escape the repayment of financial obligations, including child support payments, previously incurred in the U.S. or incurred as U.S. citizens abroad.
  • No Escape from Prosecution:
    • It may not have any effect on your U.S. taxes.
    • Renouncing U.S. citizenship does not allow you to avoid possible prosecution for crimes which you may have committed or may commit in the future which violate U.S. law.
  • Permeance:
    • Renunciation is irrevocable, except as provided in section 351 of the INA (8 U.S.C. 1483) and cannot be canceled or set aside absent a successful administrative review or judicial appeal.
  • Statelessness:
    • If you renounce your U.S. citizenship without possessing a foreign nationality, you will lack the protection of any government and may have difficulty traveling because you would not be entitled to a passport from any country. Statelessness can also present severe hardships: the ability to own or rent property, work, marry, receive medical or other benefits, and attend school can be affected. 

If you are interested in renouncing your U.S. citizenship, be sure to contact our office to schedule a consultation to speak to one of our attorneys today!