According to the Immigration and Nationality Act, section 349(a)(5), U.S. citizens have the legal right to renounce their citizenship. This provision is worded in rather a solemn language. After having reached an all-time high of 5,411 in the year 2016, According to the United States Treasury, the number of Americans who have renounced their citizenship in the United States has decreased over the previous two years, dropping to 3,983 in 2018, which is a decrease of 22% from the 5,133 that were reported in 2017. Despite this, it is still very close to its all-time high. What does it mean to give up one's citizenship in doing so?
Process and the Impact of Expatriation
If you decide to leave your citizenship, it can have serious implications. It means you forfeit the benefits granted to U.S. citizens, including the right to vote, government protection, citizenship for children born overseas, access to federal jobs, and unlimited travel in and out of the United States.
Then the renunciation process isn't as simple as throwing away your passport. It's a long legal process that requires documentation, interviews, and a large amount of money. Due to the rise in the amount of U.S. citizens seeking renunciation and renunciation, it was announced that the U.S. Department of State increased the cost for renunciation to $2,350, which is five times the cost of renunciation in other countries with high incomes, such as those in the United Kingdom. Furthermore, people with high incomes may be liable for capital gains tax, known as "exit tax."
It is important to understand that in most instances, renunciation is irrevocable, which means you'll not be capable of changing your mind and gaining U.S. citizenship. However, despite this (and other) implications increasing numbers of people are opting to give up the benefits of U.S. citizenship.
Why Are There So Many Renunciations?
Although the reasons for revoking citizenship can differ from one individual to another, the recent increase in the numbers is mostly due to the new tax laws, including that of the FATCA in 2010. As per the IRS, FATCA is "a significant development within U.S. efforts to combat tax evasion among U.S. persons holding accounts and financial assets that are offshore." FATCA focuses on the reporting of:
- FFI concerning financial accounts that U.S. taxpayers hold
- Foreign companies that U.S. taxpayers hold a significant ownership stake
The IRS warns that there are "serious penalties for failing to report the financial asset." It is to be noted that the FATCA requirements go beyond the Form 114 Report of Foreign Bank and Financial Accounts (FBAR), which is a long-standing requirement to report the foreign accounts of financial institutions. The penalties for not meeting the requirements are severe and, in some situations, could result in criminal charges.
In addition to the financial reporting requirements, there's also the problem that double taxes. In contrast to other nations that have double taxation, the U.S. has citizen-based taxation, meaning that all taxpayers are taxed regardless of where they reside or where they earned their earnings. Although tax credits for foreign residents could reduce the tax burden, they cannot completely eliminate double taxation, particularly for people with higher incomes who have to file and pay taxes within tax-paying countries like the U.S. and abroad.
The tax laws of the present, as well as those related to reporting, reporting, and tax obligations associated with them, have caused a lot of Americans to opt to abstain from citizenship, not due to the cost but also because they find tax laws and disclosure requirements complicated, cumbersome and sometimes even unjust.
Another side effect of FATCA and the obligation for financial institutions from abroad to disclose data to the U.S. This means that numerous U.S. citizens have been refused by FFI, which is a problem that can be frustrating for those who live abroad and are looking for money to be paid.
Other Reasons for Renunciation
For instance, they may have opposed U.S. policy during the Vietnam War. Certain acts may result in a person losing U.S. citizenship without formally saying goodbye. In the Internal Revenue Code and the Immigration and Nationality Act, the right to citizenship can be suspended (and consequently surrendered, not to be renounced) due to a variety of reasons such as:
- Application for naturalization and becoming a citizen of a country other than your own
- Affirming an oath to a different nation
- Involving in the armed forces of a different country fighting an armed conflict with U.S. troops. The U.S., or joining the armed forces of a different state as an officer
- A foreign government is working for you while also being a citizen of the county in which you work.
