Expatriation: How to divorce your government
Lately, more and more people have been leaving their home countries and going abroad to live, work, and start a new life. In the United States, more than 2,000 people renounced their citizenship in 2013. This is a relatively new trend but one which has only gotten larger as recent years pass. Each year, more and more people decide to hand in their passport to Uncle Sam and renounce their citizenship.
In broad terms, an expatriate is someone who leaves their country of birth to live abroad. Starting in the latter half of the twentieth century, the expat trend began as high-ranking employees were sent overseas by their multi-national employers. The advent of globalization has made becoming an expat an easier and more commonplace thing, where high-value workers can sell their skills worldwide.
But while expatriation is now associated with voluntarily living outside one’s country, it wasn’t always that way. In Nazi Germany, the government deprived intellectuals of their own citizenship. Meanwhile, people whose governments have gone on the war path against them for whatever reason have often made the sensible decision to get out of Dodge before really bad things happened to them.
In the last couple years I’ve racked up hundreds of thousands of frequent miles – and many more on the ground – visiting and living in some of the world’s most fascinating economies. I’ve seen which places “get it” and which don’t. When you look around and see how things are working, it’s not hard to figure out.
That’s why, considering how the places that mistreated their citizens end up historically, I don’t have a lot of hope for the United States or other western “free” countries.
One thing I’ve learned from the world is that opportunity is everywhere. Productive, talented, and wealthy people can find success in any number of places around the world. I’ve met countless examples of people who have achieved ever greater success abroad than they ever could have at home. They’ve made a new home outside of their birth country and they haven’t looked back.
Are you a candidate for expatriation?
To be sure, expatriation is a big decision. It involves personal, familial, asset planning, and tax ramifications to be make sure you cover your bases.
For example, will you be able to return to your home country to visit relatives? Will you be able to receive your pension or social security income (if it’s still there)? What taxes are you liable for, and what happens to your assets in that country?
On a personal level, you may consider your extended family, a business you own, or emotional ties to the country of your birth.
While I understand the decision to expatriate is not an easy one, I also believe that in order to achieve freedom, we must free ourselves from certain preconceived notions. Among those is the idea that we must be faithful to whatever patch of dirt we were born on.
While I am thankful for my experiences growing up in the United States, for instance, I never truly felt comfortable living my life there. I often felt I was born in the wrong place based on my attitudes, interests, and beliefs. For me to stay in one place simply because I was born there – out of some conformist notion of “patriotism” – seems silly.
Likewise, Big Government around the world wants you to stay put because, like infamous bank robber Willie Sutton, they know where the money is. You’ve got it. Politicians desperately need you to stay and be their milk cow so they can continue financing their bankrupt socialist agenda. Like any other farmer, they can’t afford their cows to get leave for another field.
Now, I bet you never imagined having much in common with someone from the African nation of Eritrea. But if you’re a United States citizen, you – along with Eritreans – are the only citizens on earth responsible for reporting and paying tax on their worldwide income, no matter where you live.
In most places, you pay income tax based on where you live. In countries with a territorial tax system (Singapore, Hong Kong, Panama, etc.) you only pay income tax on income earned within your country’s borders. So a Singaporean with a business in China wouldn’t pay Singaporean income tax on his overseas income. As far as Singapore is concerned, it’s none of their business. They only tax income derived from within their borders.
In most western countries (Canada, all of western Europe, Australia, etc.), countries use a residential tax system that assesses income tax based on your residence. So if you are a “tax resident” in Ireland, you’ll pay Irish income tax on your worldwide income. That business in China now becomes subject to income tax at home – subject to tax treaties that might reduce such tax – based on the principle that living in Ireland played a part in your being able to start a business or have money to invest.
But the rub is that once you leave Ireland – usually after one year of absence – you’re off the hook for further taxes. After all, you’re no longer using Irish roads, libraries, or other government services.
In the United States, however, the government has taken a different tack. Uncle Sam, in his infinite wisdom, has decreed that the mere act of possessing a United States passport is the basis for all of your success, anywhere in the world. Even if you never lived in the Land of the Free.
No matter how far away from the United States you go, the government will follow you and demand their cut. As if your arbitrarily being born onto the patch of dirt called “America” made you successful.
So while tax considerations are certainly a consideration for expatriation, I believe the reasons for leaving are a bit more diverse than that.
Consider not just the tax requirements on Americans abroad but the reporting requirements. I frequently talk to US citizens who are barraged with paperwork on everything from reporting their “offshore” bank accounts to keeping up with foreign living expenses to comply with expat tax regulations. Another group still doesn’t even know these obligations exist; these people are just waiting for hurt to rain down upon them when Big Government finds out about their “secret” bank account in whatever country they live.
Imagine, your own government faulting you and making your life difficult for having a couple grand in the bank in some other country? How else do they expect you to pay your local mortgage, utility bills, and kid’s tuition?
Remember what I said about government treating its own citizens like milk cows?
The regulatory burden on Americans abroad is intense, repetitive, and overlapping. One agency requires you to file a form reporting overseas bank accounts if they exceed one amount, while another agency requires a separate form due on a different date each year, but with a different threshold. Do you get where I’m going with this?
Take for instance, the US government’s Foreign Bank Account Reporting Form, commonly called “FBAR”. Forget to file this form or just be aware of its existence and you could be imprisoned for five years and be fined $500,000. While the sanctions imposed are often less draconian, it’s not hard to run afoul of the law without even knowing it.
For many Americans, all this trouble just isn’t worth it when you add in the pleasure of having Uncle Sam follow you around with a microscope everywhere in the world.
However, in almost every country in the world, you can choose to renounce your citizenship. For all practical purposes, you’ll need another citizenship first, which is why I talk so much about second passports. You don’t want to become stateless, do you?
If you have a permanent residence abroad and a passport from that country or a completely separate one, you can consider expatriation. For US citizens, you are required to appear before a diplomatic officer at a US Embassy, complete an oath of renunciation, and pay a $450 fee.
Yes, they’ve put a price on American citizenship. Or at least a last ditch attempt to get their hooks into those who no longer want it.
Of course, like all bad ideas from Big Government, the idea to charge for renunciation has spread. Canada, for example, now charges $100 if you can’t renounce through their “streamlined” process. And, of course, you’ll still be on the hook for any criminal issues, taxes, or military service.
Many who consider expatriation wonder if they will be allowed to return to their home country at a later date. Big Government has laid out scare tactics to not only intimidate potential expatriates, but to score points with the rest of society who have been brainwashed to believe such expatriates are “traitors”.
In 1996, the US government enacted a law called the “Reed Amendment” which technically allows them to bar anyone who is perceived by the Treasury Department as having renounced their citizenship for tax reasons from entering the country. In practice, this is not enforced. It’s also not believed to be Constiutional. How would the government know why you renounced anyway?
Of course, this is subject to the latest political winds. Recently, a braintrust headed by Senator Chuck Schumer introduced the EX-Patriot Act (get it?). On the heels of Facebook founder Eduardo Saverin renouncing his US citizenship, politicians wishing to appear to take action decided to crack down. Despite the fact that Saverin was born in Brazil and lives in Singapore, they didn’t like that he would only pay a few hundred million dollars in taxes when his Facebook stock went public.
The EX-Patriot proposal set certain limits on which expatriates could come back to the United States. It would be up to the geniuses at the IRS to determine which “specific expatriates” left for tax reasons, and which left because they merely got fed up with being treated poorly. Those who left for tax reasons would be prohibited from re-entering. Really no different from the Reed Amendment, just a new spin from politicians bankrupt of ideas.
And like all good things from Big Government, the law would have allowed the government to go back in time ten years to reclassify anyone that may have slipped through their fingers. Fortunately, the law didn’t pass.
But I believe as governments get more and more desperate for money, they’ll start shaking every piggy bank they can find. If yours comes up empty, they’ll get angry. Hell hath no fury like a government scorned.
That’s why I’m constantly staying on top of the latest trends in expatriation. I believe you have a right to determine where you live and with which country you associate. We no longer live in the Feudal Age where the lord owned his serfs and branded them with his mark.
Your government may want to brand you with their mark and bully you into staying, but you deserve the freedom to become an expatriate if that is what you so desire.
How Do I Learn More?
I actively encourage everyone to consider living abroad to see just what a world of opportunity exists. I’ve done so myself – each year, I visit or live in as many as twenty countries. My email newsletter shares actionable tips and stories gathered from my world travels in search of global economic freedom. I share knowledge from my network of experts about trends in expatriation, tips for expats, and advice for protecting yourself and your assets while diversifying abroad.