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. My own firm 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.
But perhaps I'm getting ahead of myself. Why would anyone want to expatriate? There are numerous reasons.
To permanently disconnect from U.S. tax obligations, a U.S. citizen must not only become 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 countries 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 Dutch islands in the Caribbean
- Belgium, Malta, Switzerland, and the United Kingdom in Europe
- Australia, Hong Kong, New Zealand, and Singapore in Asia
What factors 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 US 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 US 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 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.
You can also opt for economic citizenship and passport. There are two countries where this is possible: the Commonwealth of Dominica and the Federation of St. Kitts & Nevis. The costs, including all fees, start about $100,000 for a single applicant, $125,000 for a family of four.
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.
There are also numerous places where you can purchase fraudulent or stolen passports. These are popular with intelligence agencies and terrorists, because you can get the passport in a fake name. But if you get caught you face very heavy criminal penalties. Obviously, I can't recommend them.
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.
Copyright © 2010 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society, https://banyanhill.com/
