How to Eliminate US Expat Taxes (by Renouncing)

A common myth persists among many Americans that they can’t benefit from the same tax-saving opportunities as other expats when moving overseas.

That misconception is rooted in the United States’ insistence on implementing citizenship-based taxation, requiring their citizens to report and pay tax on their worldwide income – regardless of where they live.

As a result, many US citizens assume that living in a low-tax country won’t make much of a dent in their income levels.

And, yes, it’s true that citizenship-based taxation is ignored by most other Western countries, such as Canada, Australia, and the UK, which have what’s called residence-based taxation.

However, US citizens can still lower their tax obligations overseas. In fact, expats still have a number of powerful tools to reduce their tax obligations significantly. These include foreign-earned income exclusions, tax treaties, housing deductions and second-residence strategies.

With the right structure, it’s possible to reduce your effective tax rate to a single digit or even eliminate it altogether by renouncing citizenship,

In this guide, we explore the most effective exclusions, exemptions and offshore strategies available to Americans abroad who want to lower their tax burden the legal way. Before we proceed, it’s essential to note that we’re not professional tax advisors, and this article doesn’t constitute formal tax advice.

The goal is to provide you with clarity so you can confidently take the next step toward a more tax-efficient life overseas. If you’re interested in building that strategy, reach out to our expert team.

Renouncing US Citizenship

Renouncing is a near-irrevocable act where you surrender your US passport and all the rights and privileges that come with it. 

These rights include:

• Voting in US elections
• Receiving government protection
• Bestowing citizenship on your children born overseas 
• Accessing the US job market
• Unrestricted access to the US.

It may not be for everyone, but it’s the only way to fully escape the US tax net.

Once you give back your passport (you’ll pay a US$2,350 renunciation fee), there is an exit tax, which is something to consider, particularly if you’ve reached a net worth of US$2 million or higher. 

See our ultimate guide on How to Renounce Your US Citizenship for more. 

As a covered expatriate, you will pay the exit tax if you have US$2 million or more in assets, an average federal tax liability over the last five years of US$206,000 per year or cannot certify tax compliance.

Ideally, it’s a good idea to get out before your income gets too high. Once you do that, depending on your passport, you may be able to return and visit the United States.

It may be more difficult, and you might have to obtain a visa, but once you’re no longer a US citizen, you’re out.

If you do renounce, you can say goodbye to filing a US federal tax return, reporting your non-US bank accounts, foreign companies or non-US-sourced income. 

Pros and Cons of Being a US Citizen

If you’re thinking about renouncing US citizenship, you’ll first want to weigh up the benefits and downsides of holding it carefully. 

Pros of US Citizenship:

• The right to vote in federal, state and local elections
• Access to full legal protection under the US Constitution and federal laws 
• Assistance from US embassies and consulates when abroad 
• Access to job opportunities and Government benefits
• The right to bestow citizenship on children and sponsor family members for Green Cards
• A strong passport with global access and guaranteed re-entry into the country 
• A guarantee against deportation.

Cons of US Citizenship:

• Subject to citizenship-based tax obligations, even if living abroad
• The potential for double taxation
• FATCA reporting requirements and reporting your non-US bank accounts
• The negative sentiment associated with US trade and foreign policy.

Other Ways to Lower US Expat Taxes

If you don’t want to renounce to lower your US tax obligations, thankfully, there are other options.  

1. Live Anywhere Outside the US

If you’re earning a living overseas, there’s a well-established way to make this more financially rewarding from a US tax perspective. It’s called the Foreign Earned Income Exclusion (FEIE), and it’s a key tool for many US citizens living and working abroad. 

Beyond this US tax provision, you’ll also find that some countries, such as the Cayman Islands, have zero tax.

You might be considering different paths to your life abroad, maybe exploring second residency options or even citizenship by investment. These can be smart moves in your overall plan. 

But when it comes to your US taxes, the FEIE is specifically focused on your physical presence outside the US and the income you earn there. 

For the 2025 tax year, this very helpful exclusion means you can potentially shield up to US$130,000 of your income earned from foreign sources from US federal income tax. 

To make this happen, you’ll usually need to pass what the IRS calls the Physical Presence Test.

In simple terms, it means you need to have spent at least 330 full days in a foreign country (or countries) during any 12-month stretch. 

And the IRS means full days – meaning complete 24-hour periods. 

This is an important detail because days spent travelling to or from the US or time on a cruise in international waters or flying over them, usually don’t get added to your 330-day count.

Getting this right does ask for a bit of thoughtful planning and keeping good track of your travel dates, especially any trips back to the US or long holidays at sea. But the effort can be well worth it. 

Once you meet that 330-day requirement in your chosen 12-month period, you could see a really positive difference in your US tax bill on your foreign financial assets. 

It also generally leaves you room to visit the US for short periods – typically around 35 days in that year – without losing out on the FEIE for that timeframe.

2. Move to a US Territory

Moving your life and business to a US territory like Puerto Rico is another way to reduce your US expat taxes.  

There are two incentives that can reduce your US income taxes:

• Service businesses that relocate to Puerto Rico and export their services from the island can avail of Act 60 for a 4% export income tax and 0% tax on earnings.
• High-net-worth investors can pay 0% tax on interest, dividends and capital gains if they spend at least half the year (183 days or more) in Puerto Rico.

The 4% income tax rate applies to net income for businesses with over US$3 million in sales. Smaller businesses may be able to get a 2% rate for five years before it goes up to 4%. 

The 0% on earnings and profits typically refers to when these are distributed as dividends from exempt operations.

You also can’t just move to Puerto Rico and sell all the Bitcoin that you’ve been accumulating on day one of arriving. The IRS will want to know how long you have been there and when the asset was acquired.

You actually need to live in Puerto Rico first and fulfil a few steps.

All the trappings of life must be evident in Puerto Rico and it needs to be your primary home. 

All this means, that you actually have to spend substantial amounts of time there and be willing to put up with that lifestyle adjustment.

If you do it all perfectly,‌ your passive income could be taxed at zero and your business income could be taxed at 4%. 

3. Live Nomadically and Gain Offshore Tax Incentives

In certain circumstances, leaving the US and getting a second residence allows you to move around without triggering tax residence in more than one country.

This strategy also involves living outside the US, but allows you to become a tax resident of one country while actually living in another. 

You’ll need to pass the Bona Fide Residence Test and prove to the IRS that you’ve genuinely established residency in a foreign country for an uninterrupted period that includes a full tax year.

In fact, it’s possible to employ our trifecta method by travelling around the world between three countries, spending four months in each of them. This could include bases in Europe, Latin America and Asia, for example. 

You don’t have to commit to any one of them full time, and if done properly, you won’t trigger tax residence in any of them.  

The caveat with all of these methods is that you remain a US citizen. Unless you renounce, you’ll continue to report your US expat taxes, even if you’re paying very little. 

For high-net-worth individuals, this and the issues around opening foreign bank accounts for US citizens are often too much of a hassle. 

Therefore, if you want to get out from under the US tax system permanently, renouncing your citizenship is the best way. 

Where to Go When You Renounce

So, once I renounce my US citizenship, where can I become a citizen, and how?

At Nomad Capitalist, we have helped high-net-worth Americans gain citizenship and relocate to the four corners of the globe. Here are just a few options worth considering.

Ireland Citizenship by Descent

If you are one of the millions of Americans lucky enough to have European heritage, then citizenship by descent could be the easiest path. 

For instance, if you have Irish ancestry, you might be eligible for Irish citizenship through descent, which offers numerous benefits, including access to the EU and the strongest passport for 2025.

To qualify, you must have an Irish parent or grandparent who was an Irish citizen. The Irish citizenship process is straightforward compared to many other countries, making it easier to determine eligibility.

Not only does Ireland offer limitless access to some of the world’s most powerful and wealthy economies and business sectors, but also comes with tax benefits, with a low corporate tax rate of only 12.5% (this has risen to 15% for larger multinationals) making it one of the more affordable European nations to establish.

Portugal Golden Visa

The Portugal Golden Visa is a popular residence-by-investment program allowing non-EU citizens a pathway to residency and citizenship in one of Europe’s most appealing countries. 

Key investment options include €500,000 in an eligible venture capital fund (not real estate-related), €250,000 towards arts or cultural preservation, €500,000 in science or technology projects, or establishing at least ten jobs in Portugal.

Despite changes, the program still offers residency with minimal stay requirements – seven days in the first year and fourteen days every two years. Visa-free travel within the Schengen Area is included, and applicants may qualify for citizenship after just five years.

Caribbean Citizenship by Investment

You can secure a second citizenship in a matter of a few months through Caribbean citizenship by investment (CBI) programs.

Many believe that permanent residency is necessary to obtain citizenship. However, with Caribbean CBI, you often don’t need to reside in the country to get a passport, making it a convenient option for those looking to enhance their global mobility.

Renounce to Lower US Expat Taxes: FAQs 

Planning to Lower Your US Taxes?

There are many reasons to consider leaving the US, and record numbers of US citizens are already doing just that. 

Whether motivated by work or business factors, a love of overseas travel or just the pursuit of something different, the idea of living overseas can be deeply appealing.

But if you’re looking to make a permanent move, it’s important to remember that the IRS doesn’t let go easily. Unless you choose to renounce your citizenship, US tax obligations follow you wherever you go.

Renunciation isn’t for everyone, and luckily, it’s not the only path. There are other legal strategies to reduce your taxes and enjoy greater financial freedom offshore.

But whatever you decide, it’ll take planning. 

That’s where Nomad Capitalist comes in. We help seven- and eight-figure entrepreneurs and investors create a bespoke strategy using our uniquely successful methods. 

We’ll help you keep more of your own money, create new wealth faster and be protected from whatever happens in just three steps. 

At Nomad Capitalist, we have a network of lawyers, estate agents, accountants and tax and company formation specialists based around the world. All that expertise and real-world experience come together when we create your holistic, bespoke action plan. Discover how we do things here.