Would You Ever Leave Your Home Country to Lower Your Taxes?

Would you ever move to another country to pay less taxes?This is a post from personal finance blogger Liz.  She currently blogs at Budgeting For More and is a tax accountant.

For many Americans, April 15th probably isn’t your favorite day of the year.  It’s the deadline for filing income tax returns. Americans have complicated and time-consuming tax filing requirements. Trying to comply with the tax laws and correctly fill out a tax return can feel like you’re trying to complete an agility course.  Some citizens are fed up and renouncing their citizenship.

During 2013, nearly 3,000 people renounced their United States citizenship. People leave the United States for a variety of reasons. Experts believe that tougher enforcement of tax laws and increased reporting requirements are the reason for some of those leaving the last year.  It’s hard to know exactly how many people decided to leave because of this as citizens aren’t required to disclose their reason for leaving the United States.

So who’s renouncing their citizenship?

Expatriates are one population of Americans who take a beating during tax season. While they may live in a different country on the other side of the world, Americans are taxed on their worldwide income. Even if their income is already being taxed by the foreign country, they are still required to file and pay their United States taxes.

It isn’t easy for Americans to file their tax returns living abroad. Expatriate tax returns can be complicated and the disclosure requirements for foreign financial accounts burdensome and invasive. Those planning to live abroad long-term likely consider renouncing their citizenship to simplify their finances.  CNN recently did a story about expats turning in their passports.

Expats aren’t the only Americans who consider renouncing their citizenship. Anyone earning any income at all might consider leaving the United States to lower their tax bills. There are several countries that do not tax income including: Bermuda, The Bahamas, and the Cayman Islands. Living in the Caribbean and no taxes?  Doesn’t sound half bad! Many more people are likely to consider their options as taxes become more expensive and the laws become more tedious to comply with.

One American that took the plunge was Eduardo Saverin, one of the five founders of Facebook. He renounced his citizenship in 2011 and became a citizen of Singapore months before Facebook’s initial public offering. The move saved him millions of dollars in capital gains taxes as Singapore does not have a capital gains tax. His move also infuriated many and inspired the Ex-Patriot Act. While the bill was never signed into law, it did attempt to penalize those renouncing citizenship for the purpose of tax avoidance.

Keep in mind leaving the United States and relocating to a foreign country would likely be a complicated and expensive process. While other countries may not have income taxes per se, the cost of living may be much higher in the foreign country. My point is that this is not a simply decision. It would require extensive planning and analysis to really understand if it’s worth it for you.

Would you leave to save on taxes?

This brings me to my question. Would you ever consider renouncing your citizenship to save money on taxes or have you ever considered doing this? It’s a controversial issue- on the one hand, we pay a lot of money each year in taxes. It seems that taxes are only getting more expensive and more complicated.  However, is it ethical or patriotic to leave with the purpose of saving tax dollars? What would make you consider making a move like this?

online poll by Opinion Stage

Author Bio: Liz is the writer behind Budgeting for More. She’s a 20-something tax accountant and homeowner living in the Midwest with her hubby and dog, Ruby. They graduated from school in 2011 with a lot of student loan debt and are working very hard to pay this off in the next 18 months. They save for retirement and have never had credit card debt.

Photo via Free Digital Photos

About the Author Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $75,000 in debt ($50,000 in just credit cards). I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a WordPress support company, along with another blog, Eyes on the Dollar, which is another great personal finance blog.

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Leave a Comment:

14 comments
DC @ Young Adult Money says March 14

I think it make sense for some people who have deep connections overseas and are really invested there versus here. Me personally? I can’t see a situation where I’d do it.

Reply
    Liz says March 14

    I don’t Have any major ties to a foreign country so it probably wouldn’t be something practical for me to consider. I guess if I ever had a major career opportunity to work overseas that could change the game though.

    Reply
Broke Millennial says March 14

Yes, absolutely I would. BUT I also grew up as an expat so I have a much weaker connection to be an American to begin with. The tax laws on American expats are absolutely outrageous and we’re one of the only countries in the world that taxes our expats. Certain states even tax their expat citizens — even if if you don’t own property in that State. It’s infuriating to be paying for services you don’t use particularly education. When I applied to college I didn’t have the luxury of applying to any state schools as an in-state application because I didn’t have residency anywhere. Yet, my father was still paying taxes that would support such institutions.

I’m honestly surprised only 3,000 people renounced their citizenship. That’s an incredibly low number.

Reply
    Liz says March 14

    that’s really cool you got the experience to grow up abroad and I can udnerstand why you would frustrated that you were denied in-state tuition prices even though you paying your state and federal income taxes like an in-state resident.

    Reply
French Expat says March 14

I am a french expat living in the US for the last 10 years. As some of you may know french taxes are very high but luckly for me France doesn’t tax you on your world income. However, because some french ctizens try to avoid paying taxes by establishing their residency abroad, french law makers have looked into the possibility to tax their expats. They are about 2M french citizens living abroad so that would be a good source of income for the French state. I would see a move like this as deeply unfair as I am paying my taxes here in the US and I don’t get ANY benefits or assistance from the French gvmt! Even though it will be hard for me to do I would return my french passport in order to protect the financial wellbeing of my family if something like that had to happen.

Reply
    Liz says March 14

    Would you ever regret giving up your citizenship? Would giving up citizenship prevent you from being able to moving back to France if you ever decided you want to or had a change in circumstance? I imagine it would be a difficult decision to make. It is such a permanent decision and I think it would be hard to plan that far out in the future.

    Reply
Kurt @ Money Counselor says March 14

My wife and I moved from the U.S. to Canada in 2009, though not to reduce our taxes. The U.S. federal government is making it increasingly difficult–bordering on impossible–for U.S. citizens to live outside of the U.S. The legislation known as FATCA and other reporting requirements have essentially forced some U.S. citizens who have no desire to move back to the U.S. to renounce citizenship or risk jail, fines, etc.

Reply
    Liz says March 14

    FATCA is incredibly aggressive. I work on compliance with these laws from a corporate perspective. We’ve spent many hours researching the laws and making sure we will be in compliance. Mistakes could cost of thousands of dollars in fines.

    Reply
Shannon @ Financially Blonde says March 14

As you pointed out, I think there are other considerations with leaving the country in just tax savings, there would be moving costs, potentially exchange rate costs depending on the new currency, and extra travel costs if you have family back home. I hate taxes, but I could never leave the US over them.

Reply
    Liz says March 14

    Yeah it’s definitely a complicated issue and there would be a lot of factors to consider. Since all of my family lives in the United States, I would have a very hard time permanently moving so far away.

    Reply
Raquel@Practical Cents says March 14

It’s interesting how some people are literally dying to get into the USA and others can’t wait to leave. I personally don’t think I would ever renounce my US citizenship to avoid taxes. I love it here too much! Ha!

Reply
Michelle @fitisthenewpoor says March 16

We would be more willing to expat somewhere where we could pay MORE taxes for added benefits like universal healthcare, better school systems, or more social initiatives.

Reply
    Grayson Bell says March 16

    That is interesting. There always is a trade-off as long as your taxes are going toward something that you will be using or get direct benefit from.

    Reply
Jack @ Enwealthen says April 20

It’s absolutely ridiculous that America taxes income that isn’t earned in the US by citizens not even living in the country.

I don’t blame Saverin at all. The irony is that the more you earn, the more taxes you pay, and the higher incentive you have to leave the country, or at least renounce your citizenship. I realize the majority of tax revenue comes from overwhelming majority of middle income citizens. But assuming just half the people leaving last year were in similar situations, the US lost hundreds of millions if not a billion+ in tax revenue. That’s gotta smart, and just not smart on the part of the IRS.

Reply
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