How to Move Out of the US Permanently... From Start to Finish.
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Contents
- Your "Best" Solution for Moving Out Depends on You
- Why Do People Want to Leave the US For Good?
- Should You Leave Forever and Expatriate?
- How to Move Out of the US: Your 4-Step Plan
- Step 1: Move Assets Offshore
- What makes for a good wealth protection country?
- Step 2: Find Another Country to Live in
- Some Other Things to Think About When Choosing Your New Home Outside of the US
- Step 3: Get Another Passport
- Step 4: Give Up US Citizenship and Passport
- How to Move Out of the US: Frequently Asked Questions
- Let Us Help You Decide if Expatriation Is Right for You
Every election year, there’s an increase in the number of people who want to move out of the US permanently. But this year is different. For the first time since I started in the business in the late 2000s, it doesn’t seem to be tied to whether any one candidate wins or loses.
Instead, our clients are assuming it doesn’t matter who wins — the US is on a path of terminal decline.
If Harris wins, they believe the moment of truth will be moved up a couple of years. If Trump does, it might be delayed by a few years.
But the decline… and inevitable crash… IS going to happen. It’s just a question of when. And how.
Your "Best" Solution for Moving Out Depends on You
For some clients, the best solution is to plan to stay in the US but get their assets out of dodge. For others, they move their assets overseas and have a second residency or passport. And for a select few, they look at leaving forever… that is, they give up their passport and expatriate.
Where you end up depends on a lot of different things. But where you start is by understanding what is actually involved in leaving the US permanently.
In this article, we will share exactly how we help clients go through the process of expatriation. At the end of it, if you are interested in exploring this further, feel free to get in touch.
What we mean when we say "Expatriation"
A quick search on the internet will turn up numerous definitions of the words “expatriation” and “expatriate.” In all but two countries that tax their residents’ worldwide income, “expatriation” means ending your legal obligation to pay tax on income from outside that country.
You simply leave that country and move to another one. Once you’ve been non-resident for a certain period – generally one year or more – only local income in the country you left is subject to tax in that country.
In this context, someone who has achieved non-resident tax status with respect to their former “tax home” country is an “expatriate.”
But expatriation has a different meaning for a US citizen.
In order for a US citizen to expatriate, they must not only leave the US and establish legal residency in another country, but also give up their US citizenship and passport.
If you simply want to leave the US but keep your US passport, you must keep paying US taxes no matter how long you live overseas.
This article focuses on that process: to give up US citizenship and break free of Uncle Sam’s net entirely.
Why Do People Want to Leave the US For Good?
We’ve helped a lot of people over the years with this and I can tell you from personal experience that no one likes paying taxes. But it’s rarely about taxes. At least not directly.
Here are the most common reasons clients tell us they’re leaving…
Double tax obligations
The US is one of only two countries in the world that imposes income tax on its citizens’ worldwide income, even if they live in another country. (The other country is Eritrea, a totalitarian dictatorship.) That means filing two sets of taxes every… single… year.
Painful reporting requirements
Americans living abroad must tell Uncle Sam about almost every asset they hold outside the US every year. That can mean thousands of extra dollars in accounting fees each year. That’s not much different from an invisible tax.
Difficulty in maintaining foreign financial accounts
The Foreign Account Tax Compliance Act (FATCA) has made it hard for Americans to have bank accounts overseas. Many foreign financial institutions simply won’t deal with US clients, even when the local clients have a local residency permit.
Thankfully, this is not as bad as it was some years ago. But it can still be a nuisance.
Challenges with employment and business
Americans abroad sometimes face difficulties getting a job, forming a business, or entering into business relationships with foreign entities… simply because they carry a US passport.
Retirement planning issues
Many countries offer something similar to tax-deferred US retirement plans like a 401(k) or an IRA. But Uncle Sam often doesn’t recognize the tax benefit on such foreign plans. And because you’re stuck paying tax in the US, you’ll effectively lose that option unless you’re willing to pay taxes twice. Not only does it make it hard to plan for retirement, but it’s also really unfair.
Should You Leave Forever and Expatriate?
That will depend on your situation. But if:
You plan to leave but keep a lot of assets in the US.
A lot of your income is US-based (including Social Security and private pensions).
Your US estate planning is very complicated.
You have a net worth of more than $2,000,000, or your average net income tax meets certain minimums.
… then you need to give this some serious thought. Because although there are some great benefits, there are some real costs including:
You might not be able to come back. In order to expatriate, you’ll need a second passport. If that passport doesn’t grant visa-free access to the US, it can be a real challenge to get a visitor’s visa. Uncle Sam has no legal obligation to let you back in. That said, most of our clients in this situation have eventually received visas for at least a short-term visit.
Estate planning becomes much harder. A lot of the structures you relied on to minimize your tax burden won’t work if you aren’t a US citizen. For instance, many countries don’t let you use a trust, including a living trust, to own property in that country. Workarounds are available, but they can drive up the cost of this planning.
Taxes on US income will probably go up. That’s because you may lose the ability to claim any deductions on that income, including on social security and pension income. (An exception may apply if your country of residence has a comprehensive tax treaty with the US.)
How to Move Out of the US: Your 4-Step Plan
To fully disconnect from the US, American citizens must do more than just become non-residents. They need to formally give up their US citizenship and passport – a process called expatriation.
This process of permanently leaving the US can be broken down into four key steps.
Step 1: Move some or most of your assets offshore.
Step 2: Find another country to live in that offers what you’re looking for and relocate there.
Step 3: Get another passport.
Step 4: Give up your US citizenship and passport.
Let’s look at each step in more detail.
What's the difference between Renunciation and Relinquishment?
Step 1: Move Assets Offshore
The first step is to move some, or even all of your assets out of the US. This makes income and estate planning much easier once you expatriate. Without this advance planning, US tax issues can become a real problem.
And after expatriation, it may be easier to obtain a visitor’s visa if you can show Uncle Sam that you’ve broken connections with the US. If you can’t prove that, getting back in could be that much harder.
As you can see, this type of planning can be very complex. But we can help you sort it out.
Of course, the question is where to move your assets to?
Ultimately, that depends on where you plan to move, how much money you have to move, and your personal preferences. In our case, we analyze a client’s needs before we make recommendations on what the best strategy is for them, focusing on tax planning, visa planning, and wealth preservation planning, among other aspects.
What makes for a good wealth protection country?
- How strong are the asset protection and privacy laws? How easy is it for creditors to get a judgment against you? And how likely is it that they will respect a US court order if you lose back home? Some countries don’t honor US judgments at all. Others will respect them in certain circumstances or if certain formalities are followed. Getting a sense of the rules in this area will give you a good idea of how the country treats property rights.
- How politically and economically stable is the place? Nigeria and Zimbabwe inherited English law, but you probably wouldn’t want to move assets to either country. Belize has a very strong asset protection trust law. But crime is an issue in certain parts. And banking is difficult.
- How stable is the legal and financial infrastructure? Plenty of popular asset havens are remote islands with few banks, trustees, and lawyers from which to choose. It can be hard to find the professionals you need.
- Does the jurisdiction tax international income of non-resident investors? Most international financial centers don’t. They tax only the domestic income of international trusts, companies, bank accounts, etc.
Step 2: Find Another Country to Live in
These are the countries to which you may wish to relocate in the future. Or buy property there, “just in case.” Popular countries for US expats to live in and/or buy property include:
Argentina, Belize, Canada, Costa Rica, Ecuador, Mexico, Nicaragua, Panama, Paraguay, and Uruguay in the Americas.
The Bahamas, the Cayman Islands, and the Dutch territories in the Caribbean.
Antigua & Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, Saint Kitts & Nevis, Saint Lucia, and Saint Vincent & the Grenadines. These countries are all “protocol countries” of the Organization of Eastern Caribbean States (OECS). With a passport from one of these countries, you can live and work in any other OECS protocol country. Many of our clients have acquired citizenship by investment in Dominica or St Kitts & Nevis and thus have earned this right.
Indonesia, Malaysia, Thailand, and Vietnam in Asia.
What’s right for you will vary. I personally don’t like the heat, so a tropical country isn’t right for me. Our founder, Mark Nestmann, lives in Phoenix and (mostly) enjoys the warm climate.
Also, every country will have their own rules and qualifications when it comes to getting residency. Some are cheap and easy. Others are much more difficult and can take some time.
Some Other Things to Think About When Choosing Your New Home Outside of the US
- Language and Culture. The local language and cultural norms can significantly impact your daily life. Evaluate how comfortable you’ll be navigating a new linguistic and cultural environment.
- Legal Rights and Security. Consider how the country protects the rights and security of foreign residents. Look at the quality of the health infrastructure, especially if you have specialized medical needs. If you depend on prescription medications, make sure you can get them.
- Taxes. Understand the tax picture once you become a resident in your chosen country. This can be a major factor in your overall financial planning. And keep in mind that a handful of countries will allow you to negotiate your tax burden ahead of time.
- Maintaining Residency. Once you get residency, most countries also have requirements to keep it. Spending a minimum amount of time in the country each year is standard, though not everywhere. You may also need to demonstrate language proficiency and cultural integration within a certain timeframe.
- Citizenship and Passports. Find out if the country offers a path to citizenship and a passport after a certain period of residency, and what the requirements (including language proficiency) are. Unless you already have a second passport, you’ll need this if you’re going to give up your US citizenship and expatriate.
Step 3: Get Another Passport
As mentioned, US citizens must give up their citizenship and passport in order to expatriate. This means you must get a second passport before you give up your US passport. Otherwise, you become stateless – literally a person without a country. This is a status you want to avoid at all costs.
If you don’t qualify for a second passport by naturalization, ancestry, marriage, religion, or military service, the fastest way is to (legally) buy one. You can find more information on official citizenship by investment programs here.
Need Help?
The Nestmann Group can assist in every phase of giving up your US citizenship or long-term residence. This includes helping you get a second passport before giving up US citizenship.
Schedule a free no-obligation consultation with a Nestmann Associate to see if expatriation is right for you.
Step 4: Give Up US Citizenship and Passport
You can complete the three previous steps without formally moving overseas. At this point, you face a choice: to expatriate or not?
If you do decide to expatriate through renunciation, here’s the basic process:
#1. Schedule an appointment with a U.S. Embassy or Consulate
In order to start the process, you’ll contact the nearest US embassy or consulate to schedule an appointment. This must be done outside the US.
#2. Go to your appointment with the paperwork in hand
You’ll show up for your appointment with your US passport, proof of foreign citizenship, and completed forms that are required by the embassy or consulate. You’ll also need to pay the $2,350 fee. (In 2023, the State Department proposed reducing this fee to $450. But its regulations still call for a $2,350 payment.)
You’ll then sign the necessary documents in front of a consular officer. And you’ll surrender your US passport to the officer.
#3. Receive Certificate of Loss of Nationality (CLN)
Within a few months of your expatriation, you will receive a CLN from the State Department. Do not lose this; it’s proof you are no longer a US citizen and thus are no longer obligated to pay tax on your worldwide income to Uncle Sam.
#4: File Form 8854
All expatriates have to tell the IRS they are leaving. This is the form to use. It gives the IRS all the details needed to properly process your exit. If you are a covered expatriate, it will also help you calculate your exit tax. (In practice, this should be part of your planning ahead of time in order to avoid any nasty surprises.)
#5: File your Final US Tax Return
It’s your typical 1040, although with some changes to account for the fact that this is your final US tax return as a US taxpayer. You’ll attach your 8854 to it.
#6: Pay Final Taxes
You’ll have to settle up with the IRS. If you’re a covered expatriate, you’ll have to pay the IRS or arrange to pay over time. If you aren’t covered, you’ll just have to pay any regular taxes outstanding.
#7: Ongoing Tax Obligations
If you still have any US income, you’ll still have to pay applicable taxes on it every year as a non-resident alien, with a few exceptions. But taking advantage of these provisions requires careful planning to avoid an estate tax trap.
How to Move Out of the US: Frequently Asked Questions
How much does it cost to move out of the US?
There are multiple fees involved, but they can be broken down into three buckets — government, legal, and accounting.
In theory, you can do it yourself and pay just $2,350 to the State Department to process your request.
In practice, unless you have no assets, we do not recommend doing this on your own. We’ve had clients who did so and then came to us to clean up the mess. It’s not pretty.
If you do engage a firm to help with the process — including the legal and accounting aspects — you can generally expect to pay anywhere from $10,000 to $20,000. If you’re a covered expatriate, there’s more paperwork and the planning around it is more complicated. That means more fees — $50,000 to $75,000 is possible depending on certain factors.
After expatriating, can you still use your US passport for international travel?
No, you cannot. Expatriating means you give up your US citizenship and passport.
Do you still need to pay taxes to the IRS after giving up your US citizenship?
It depends on your circumstances. If you are considered a covered expatriate, you may have to pay a hefty exit tax on the unrealized gains in every asset you own. This tax will be based on a deemed sale of all your assets at fair market value the day before expatriating. Plus, the assets in some retirement plans, including traditional IRAs, are deemed distributed and thus taxed.
And after expatriation, you may still need to pay tax on your US-source income.
Can you go back to the US to visit family and friends after giving up your US citizenship?
Expatriation means you no longer have the automatic right to enter or live in the United States. If your other passport is from a country that allows visa-free access to the US, you’ll probably be allowed back in. But if your second passport requires a visa, it’s more of a challenge. That said, we’ve usually been able to help clients get at least a short-term visa in this situation.
How hard is it to move out of the US?
The process itself is pretty straightforward. The planning around it is not, unless you work with an experienced guide. There are A LOT of things to consider and it will take at least a few years for most people to complete.
If you’re a high net worth individual or family, it’s going to be even more complicated thanks to the covered expatriate status.
Let Us Help You Decide if Expatriation Is Right for You
Leaving the United States for good is a big decision. Thankfully, it’s something you can do in steps and stop at any time without consequence… at least, up until the moment you officially give up your citizenship in front of a consular official and surrender your US passport.
If you’re considering giving up US citizenship, get in touch to schedule a free no-obligation consultation with a Nestmann Associate to see how we might help you. We offer a complete start-to-finish package for clients looking for help in this area.
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
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