Leaving Your Country

The only way for a U.S. citizen or permanent resident to sever all ties with the United States is to expatriate. That is, you give up your citizenship and passport, or, in the case of a permanent resident, your green card, and live as a foreigner outside the United States.

The "official" number of people who take this admittedly radical step is tiny—only a few hundred annually. Their names are published in the Federal Register each quarter. But the real numbers are probably much higher.

We helped six people expatriate in 2009, and we have several more in the pipeline for 2010. There's nearly a one-year wait to make an appointment to expatriate at the U.S. consulate in London. Waiting times are almost as long at numerous other consulates worldwide…
To permanently disconnect from U.S. tax obligations, a U.S. citizen must not only become a non-resident, but also give up U.S. citizenship and passport. If you're wealthy, giving up U.S. citizenship and residence can save millions or even billions of dollars in future taxes.
Expatriation also eliminates the increasing difficulties U.S. citizens face investing or doing business outside the USA. As a consequence of the U.S. government's intensifying crackdown against anything "offshore," most offshore banks now prohibit anyone with any connection to the United States from opening an account. Giving up U.S. citizenship and passport eliminates this problem.

Finally, expatriation frees you from the possibility of your non-U.S. assets becoming subject to any future exchange or currency controls the U.S. government might impose to protect the value of the dollar or to shore up its shaky finances.
Fortunately, you can make nearly all of the preparations for a possible future expatriation without leaving the United States.

This is a four-step process. Once you've accomplished the first three steps, the final step—expatriation—is much easier than if you're starting from scratch…

Step 1. Move Your Assets to Safer Havens
Where There is Enhanced Protection for Wealth

Some of the most popular wealth havens include:

Switzerland, Liechtenstein, and Austria in Europe
Panama and Uruguay in Central and South America
Hong Kong and Singapore in Asia
Dubai in the Middle East

Visit the country where you're thinking about placing your wealth. Talk to bankers, insurance agents, etc. Increasingly, you'll be required to make a personal visit before you can open a foreign bank account. You may also find that the bank requires that you invest through an offshore structure, not in your own name.

Step 2. Find Another Country to Live
in that Offers Greater Personal Freedom

These are the countries that you may wish to relocate to in the future. Or buy property there, "just in case." Popular countries for U.S. expats to live in and/or buy property include:

Canada
Belize, Costa Rica, Ecuador, Mexico, Nicaragua, Panama, and Uruguay in central and South America
The Bahamas, Cayman Islands, and the Dominican Republic in the Caribbean
Belgium, Malta, Switzerland, and the United Kingdom in Europe
Australia, Hong Kong, New Zealand, and Singapore in Asia
What else should you consider in choosing a freedom haven?

One obvious consideration is the availability of residence rights. What do you have to do to gain residence? You may only have to demonstrate some minimal level of income in some countries to obtain a residence visa. Others require a guaranteed pension. In others you may have to make a substantial investment in the country. In others you may need to qualify on a points system. Some countries have multiple programs you can consider.

You should also consider security and enforcement of legal rights for foreign investors; infrastructure (especially if you need specialized medical attention); language; prejudice against Americans; and taxes.

Finally: will that country award you a passport after you've lived there a certain number of years? Can the passport function as an acceptable alternative to your U.S. passport?


Step 3. Get Another Passport

For U.S. citizens, the most important reason to obtain a second passport is that it's a necessary prerequisite for Step 4, which is to relinquish all legal obligations to the USA by giving up U.S. citizenship. A second passport also:

Provides expanded travel possibilities to “forbidden countries” like Cuba, North Korea, etc.
Protects your identity, should you ever need to keep your nationality a secret
Gives you the right to reside in other countries
Gives you a way to cross international borders if your primary passport is lost or stolen
One way to get a second passport is to live in another country for a certain number of years, ranging from two to 10, sometimes even more. But in some countries, it's not possible to obtain a passport if you enter under certain visa categories, and sometimes not at all. And, it's almost never possible to obtain a passport unless you first obtained an official residence visa to live there. Other permits may also be required.

If you don't want to leave the United States, you might be able to get a passport based on your ancestry or marriage to a national of that country. Your religion may also result in eligibility for citizenship and passport in another country. For instance, if you're Jewish, you may be able to move to Israel and claim an Israeli passports for you and your family. In certain circumstances, Thailand grants passports to individuals who become Buddhist monks. However, if you choose this option, you must make a lifelong commitment to poverty and sexual abstinence.

In almost every country, if you do something of great benefit to the government, you can be awarded a passport. Austria is one country where there is a formal legislative framework established for this process. But it is very expensive and politically controversial.

Step 4. Expatriate from the United States

You can accomplish all of three previous steps while still residing in the United States. At this point, you face a choice: to expatriate or not?

Expatriation is a radical step. There are many complications, beginning with the possibility of paying an "exit tax" for the privilege of permanently severing your national ties. And what does your wife—or husband—think about living in Belize?

Will you be leaving family members behind? If so, will you able to visit them? The answer is usually yes, although you may need to obtain a visa to re-enter the United States.

There's also the possibility—remote in 2010, but increasing in future years—that Congress will eventually make expatriation much more difficult. In another decade, perhaps less, the price of expatriation may be to present a balance sheet to the IRS, and give half of the number appearing on the bottom line to the U.S. Treasury.

Is expatriation for you?

The decision to give up U.S. citizenship is a serious one. It's a step you should take only after consulting with your family and professional advisors. But it's the only way that U.S. citizens and long-term residents can eliminate U.S. tax liability on their non-U.S. income, wherever they live. And it's a tax avoidance option that Congress may eventually make much more onerous.

For more information contact us at BankerTrust@gmail.com

US Expatriation

The United States is the only major country that imposes tax on a citizen's worldwide income, no matter where that citizen lives. If you live in Britain, Botswana, Bulgaria, or almost any other country, all you need to do to avoid the obligation to pay tax on your worldwide income is to leave. After an extended period—normally 1-2 years, sometimes longer—you no longer have any obligation to pay taxes on your income outside that country (although you may continue to be subject to gift and estate taxes).

But not the USA. To permanently disconnect from U.S. tax obligations, a U.S. citizen must not only leave the United States, but also take the radical step of giving up U.S. citizenship. This process (from a U.S. standpoint) is called expatriation. It also requires that you acquire citizenship and a passport from another country, and also live outside the United States, if you're not already living overseas.

If you're wealthy, giving up U.S. citizenship or residence can save millions or even billions of dollars in future taxes. The total combined state-federal income tax burden for most high-net-worth earners in the United States is close to 50%. And President Obama promises to hike that burden to pay for his tax-and-spend policies. For instance, if you anticipate earning US$2 million over the next five years, expatriation could save you a cool US$1 million in income tax. Not to mention millions more in the years ahead, and millions more again in estate tax savings.
What's more, expatriation eliminates the increasing difficulties U.S. citizens face investing or doing business outside the USA, no matter where they reside. As a consequence of the ongoing and intensifying crackdown against anything "offshore" by the U.S. government, most offshore banks now prohibit anyone with any connection to the United States, no matter how remote, from opening an account. Giving up your U.S. citizenship and passport eliminates this problem.

Only a few hundred people, many of whom are not wealthy, give up their U.S. citizenship annually. However, the popular image of unimaginably wealthy former U.S. citizens living tax-free in tropical paradises is an irresistible political target. Former Congressman Sam Gibbons, a Florida Democrat, once spoke of "the despicable act of renouncing allegiance to the United States." Former Congressman Martin Frost, a Texas Democrat, supported tax penalties on expatriates on the basis of "basic patriotism and basic fairness." The ferocity with which U.S. politicians have seized upon the expatriation issue has resulted in a series of increasingly stringent laws that put real teeth into rules penalizing U.S. citizens who give up their U.S. citizenship.

Because these anti-expatriation rules have historically been relatively easy to circumvent, there have been periodic calls to make what critics call the "billionaire's loophole" stricter. The latest effort to thwart the migration of wealthy individuals from the USA came in 2008, when Congress replaced the existing rules in their entirety with an "exit tax."

The exit tax is based on the legal fiction that an expatriate sells all of his or her worldwide property on the day before the date of expatriation at its fair market value. Tax on the fictional gain is due at the time the expatriate's tax return is due for the year of expatriation. Unrealized gains in non-grantor trusts and some retirement and pension plans are exempted from the exit tax, but subject instead to a 30% withholding tax on future distributions.

Moreover, the exit tax applies not only to former U.S. citizens, but also to long-term green-card holders who have resided in the United States for at least eight of the 15 years preceding expatriation.

How are you supposed to pay the tax without selling your assets? That's your problem—not the IRS's—although the law permits deferral by posting acceptable security with the U.S. Treasury and paying an interest charge on the amount deferred. The law also imposes a substitute estate tax of 'covered gifts or bequests' that exceed US$13,000 annually received by a U.S. citizen or resident from a covered expatriate, payable by the recipient. The US$13,000 exclusion is adjusted annually for inflation.

Fortunately, there are some loopholes in the law that provide planning opportunities for prospective expatriates:

The first US$600,000 of unrealized gain isn't subject to the exit tax. This amount is adjusted annually for inflation, and for 2009 the exemption is US$636,000. The exemption doubles for a married couple, both of whom expatriate. In addition, even if unrealized gains exceed US$636,000, the exit tax only applies to individuals who:

Have a global net worth exceeding US$2 million (US$4 million for a married couple); and/or An average annual net income tax liability for the five preceding years ending before the date of expatriation the loss of U.S. citizenship or residence exceeding US$124,000 (adjusted for inflation, US$136,000); and/or Fail to certify under penalties of perjury that they have complied with all U.S. federal tax obligations for the preceding five years or fail to submit evidence of compliance as required by regulation. Only certain dual citizens and minors with few ties to the United States are exempted from these requirements.

The best that can be said about the exit tax is that the new rules offer a clean break with the U.S. tax system as of the date of expatriation. Unlike prior law, there is no longer a 10-year period after expatriation during which special punitive tax and immigration rules apply.

Is expatriation for you? The decision to give up U.S. citizenship is a serious one. It also requires substantial advance planning, including the acquisition of a second passport, if you don't already have one. It's a step you should take only after consulting with your family and professional advisors. But it's the only way that U.S. citizens and long-term residents can eliminate U.S. tax liability on their non-U.S. income, wherever they live. And it's a tax avoidance option that Congress may eventually eliminate altogether.

Official passports to Dominican Republic are procured through Banker Trust. Contact us atBankerTrust@gmail.com