With the increasing burden and nuisance over US taxes, many American expats are considering renouncing their US citizenship. Every year, thousands of Americans living abroad choose to renounce U.S. citizenship. This act of voluntarily giving up U.S. passports may seem unbelievable but it has become a common practice. Citizens of other countries living abroad also choose to renounce their citizens for several reasons.

It has become a way to avoid mandatory military service or express philosophical differences. But when it comes to Americans, the reason is completely different.

When a person renounces U.S. citizenship, he/she gives up all the rights and benefits, such as voting rights and government protection abroad. Besides getting deprived of all the benefits, renouncing citizenship can be complex and involves extensive paperwork and several formalities. But still, the number of people giving up U.S. citizenship is increasing.

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Also, once you give up citizenship, you can’t undo it. Even if you change your mind, you may never regain your citizenship. So, why Americans abroad are choosing to renounce U.S. citizenship?

Reasons Americans Renounce U.S. Citizenship

There is no accurate data provided by the U.S. government that reveals the exact cause of Americans renouncing their U.S. citizenship. However, the most obvious reason could be to avoid taxes and penalties. Approximately, 1 in 4 American expatriates considers leaving their U.S. citizenship to avoid the burden of filing U.S. taxes.

The American expatriates living overseas feel burdened due to U.S. tax filing requirements. Renouncing citizenship has nothing to do with patriotism or tax evasion. It is simply a way to avoid paying double taxes because people are taxed irrespective of where they live.

  • Avoid Double Taxation

American expats are subject to annual U.S. taxation that includes paying taxes on their income abroad. It means that U.S. citizens need to pay taxes on their salaries, business profit, rental income, and more. In addition to this, the expats need to pay taxes where they live which puts a burden of double taxation. Even if the IRS offers some tax credits and measures to avoid double taxation, the complex tax filing requirements may seem overwhelming.

Renouncing citizenship revokes the privileges an individual enjoys as a citizen but it helps in avoiding future US taxes. The individual will be relieved from the burden of reporting to the IRS. There is another “transition tax” that was introduced under the Trump tax reform. This new tax law has obligated expats to pay a transition tax of about 15% on their retained earnings.

  • FATCA

More Americans started renouncing their citizenship after the Foreign Account Tax Compliance Act (FATCA) came into effect. In 2010, FATCA regulations made it harder for U.S. citizens to hide assets in overseas accounts. Even if American expatriates don’t have to pay taxes, dealing with all the paperwork can be quite complex and costly. The FACTA states American expatriates should give details of their foreign bank accounts and assets, besides reporting and filing all their taxes. This Act has complicated the paperwork procedure for expatriates and is forcing them to renounce US citizenship altogether.

How to Renounce U.S. Citizenship?

American expats are renouncing their citizenship for multiple reasons. However, financial reasons remain the primary cause of citizenship renunciation. The process of giving up U.S. citizenship is quite straightforward but also time-consuming. You can get detailed information from section 349(a)(5) of the Immigration and Nationality Act. To voluntarily renounce U.S. citizenship, the person needs to appear before a U.S. consular or diplomatic officer.

If the individual is in another country, he/she can visit the U.S. embassy or consulate to sign an oath of renunciation. To voluntarily renounce U.S. citizenship, the person needs to appear before a U.S. consular or diplomatic officer. If the individual is in another country, he/she can visit the U.S. embassy or consulate to sign an oath of renunciation.

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