For the better part of a century, we’ve been told taxes are the price we pay for living in “civilization.”
This message is the same from big cities and small towns across many Western countries. From France to the United States, Western governments have long bought influence by giving stuff to the “middle class” for free.
There is one government service that is far from free. In fact, the price not only keeps going up, the renunciation of US citizenship.
We frequently emphasize the importance of having a Plan B at Nomad Capitalist. Even if you don’t plan on renouncing, circumstances can change unexpectedly, and knowing that you have options is reassuring.
We are here to help you if you are interested in discussing your Plan B and the possibility of renouncing your US citizenship.
The Cost Of Renouncing US Citizenship
Firstly, renouncing US citizenship requires that you obtain a second citizenship to even start the process. Some people have become stateless (i.e., they renounce only to have no nationality), but that is not only dicey but often forbidden by embassies.
How do you go about obtaining a second passport? There are five ways that you can obtain a second citizenship: naturalization, investment, descent, or marriage.
By acquiring a second passport, you regain control and diversification. Having multiple passports offers you an exit strategy and gives you the opportunity to live, work, study, and travel in other countries, enhancing your personal freedom while at the same time reducing your tax burden.
Besides the cost of actually qualifying to renounce citizenship, the US government imposes a fee for their time and hassle.
Up until several years ago, there was no fee; processing citizenship renunciation was a benefit you received from all those years of paying taxes.
A number of years back, the government added a $450 fee to cover the “paperwork” involved at their US embassies. That was about five times the average of other Western countries that charged a fee for renunciation, and while a bit insulting, it was reasonable.
In 2016, in the wake of year after year of record-high number of US citizens turning their passports back in, the government raised the fee to $2,350 – more than twenty times what some European countries charge.
Few Germans, Polish, or Brazilians renounce their citizenship because there is no reason for them to do so. As soon as they stop living in their home country, they stop being taxed and regulated as residents.
Only US citizens remain subject not only to US taxation but also to US regulations.
The only way to escape is to turn your passport back in, and the US government is all too happy to charge you a ransom.
The Cost Of Relinquishing US Citizenship
For those who didn’t wish to renounce their citizenship, there was a second option: relinquishment. The late Tina Turner did this by taking Swiss citizenship – something that took her well over a decade to get – with the intention of giving up her American passport.
If you look at a US passport, you’ll see that you can lose US nationality in any number of ways, including pledging allegiance to a foreign state with the intent of being deprived of US citizenship.
It’s a bit of a semantics game, but it has worked for some folks. However, the US – with all of its nearly $33 trillion in debt – has caught on to yet another loophole by the “evil rich” and has increased the fee for processing a citizenship relinquishment from $0 to the same $2,350 that renunciation costs.
The government explains it this way:
Currently, nationals who renounce nationality pay a fee of $2,350, while nationals who apply for documentation of relinquishment of nationality by the voluntary commission of an expatriating act with the intention to lose nationality do not pay a fee.
However, the services performed in both situations are similar, requiring close and detailed case-by-case review of the factors involved in a request for a Certificate of Loss of Nationality, and both result in similar costs to the Department.
They continue…
In the past, individuals seldom requested Certificates of Loss of Nationality from the Department to document relinquishment. Although the Department was aware that an individual relinquishment service was among the most time-consuming of consular services, it was rarely performed, so the overall cost to the Department was low, and the Department did not establish a fee.
Allow me to translate government-speak into English:
“Our country has the world’s most outrageous laws on taxes and regulation, and as we impose even more ridiculous requirements on people who don’t even live here, a lot of our most successful citizens are flying the coop.
While America claims to be a free-market economy, we actually operate more like a modern-day plantation and can’t allow people to merely leave the country without taking a final pound of punitive flesh.
Sure, these citizens have likely paid tens or hundreds of thousands of dollars in taxes. Some may have paid even more, and no doubt many of those tax dollars were paid by said citizens while living overseas and enjoying not a single benefit our country has to offer.
These citizens didn’t enjoy the below-standard education system or the sky-high medical costs.
Despite all of the money the government has collected from these expats, the message is clear: a government that wants to take from you will take from you at any opportunity it can get.
If leaving your home country is part of your “Plan B,” then you should know they will make it harder and more complex the more desperate for cash they get.
From $0 to $450 to $2,350, and from $0 to $2,350 in just a few years, is the trajectory the United States is on.
Your country could be next if they choose to implement the same draconian tax laws. Our money is on Canada and Australia.
If you decide to renounce, you will truly experience the benefits of freedom. Declaring dividends from foreign companies, opening new bank accounts, or starting a corporation will no longer be subject to reporting for US tax as a non-US citizen.
If you are seriously considering obtaining a second passport before renouncing your US citizenship, contact the Nomad Capitalist team. We work with our wealthy clients as the architects and general contractors of their holistic strategies, helping them preserve freedoms, especially in uncertain times.
