FATCA has had the (probably) unintended consequence of making it financially much harder to be an American overseas, leading to a dramatic increase in the number of American expatriates renouncing their American citizenship. The Wall Street Journal (paywall) reports that during the W administration an average of 480 Americans gave up their citizenship yearly, while that number has jumped radically since FATCA was passed. In the just-completed third quarter, a record 1,426 people renounced their US citizenship, bringing the year's total to 3,221, just 196 short of the record for a full year. It seems a lock to bet that more than 196 people will apply in the fourth quarter, producing a new record number.
As a further kick in the teeth, the feds dramatically increased the fee that these people must pay to renounce.
Simply applying to renounce citizenship now costs $2,350, way up from the $450 fee of a few years ago, meaning the IRS made over $7.5 million just by processing renounced citizenships. The figure is actually even higher than that, as wealthier Americans who renounce their citizenship are hit with an expatriation tax that can total into the millions.Should you be in that group the democrats considered they could tax without repercussions, you're required to pay an exit tax. To leave America, you generally must prove 5 years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $160,000 or more (that’s tax you paid, not income), you pay an exit tax. It's a capital gain tax as if you sold your property when you left. There's an exemption for the first $680,000.
As the cheesy infomercials like to say, "But wait! There's more!" FATCA drastically increased the amount of paperwork and reporting that foreign banks must do if they allow Americans to bank there. Foreign banks, brokers, insurers, and other financial institutions must provide the IRS detailed asset and transaction records for any accounts held by Americans, including corporate accounts controlled by American employees. If the foreign bank refuses, the IRS can slap a 30% withholding penalty on any transaction going from a US bank to the foreign company.
As a result, foreign banks are increasingly refusing to work with American expatriates. Obviously not the "rich fat cats" that the politicos rail against, but average, middle class Americans working overseas: English teachers, sales reps, lawyers and retirees - who are the overwhelming majority of expatriates. Especially the retirees, who generally are overseas because they can live cheaper there than here in the US; the foreign banks don't make enough profit off the retirees when the costs of compliance to the IRS rules are included.
It's not much better for expats working as employees or business partners of foreign companies in the FATCA age. Any financial accounts they can access must now be exposed to government scrutiny; not just from the US, but from any one of over 100 other countries that have signed FATCA-related information-sharing agreements with DC. Americans up for executive posts in Brazil, Switzerland, Singapore and elsewhere have been asked to renounce their citizenship in order to get the promotion.
FATCA has the effects of limiting opportunities for Americans to work or live overseas, or making them renounce their citizenship if they want to work. The exit tax has the effect of the Fed.gov saying, "how dare you think you can take what you earned away from our taxing authority". Doesn't that sound like something the mafia would do?
Incorporate a sham company, use the Cayman Islands for your tax purposes and banking then tell FedGov to fuck off, just like big American corporations do.
ReplyDeleteAmericans are growing more and more toxic in the eyes of the rest of the world. You don't piss off 160,000 foreign financial institutions without reprcussions. Not only are the 8.7 million expatriates squirming, not only are one million small American owned businesses abroad struggling to compete let alone keep their financial accounts, but how long before these FFIs direct their clients to shop elsewhere? The US exports $2 trillion annually in goods and services. We're already seeing GE and Pfizer making moves to relocate abroad.
ReplyDeleteNobody can live under two tax systems; there are no workable compensations. What one juridiction grants, the other takes away. We have no ability to minimize our tax burdens as our neighbors do.
Taxing citizens in foreign lands is a statement of ownership -- the USA owns its citizens wherever they reside. Under any objective definition, this is not government by the people for the people but slavery, and it contravenes the worldwide right to leave your own country.
Citizen-based taxation is also theft. The 8.7 million generate capital in foreign economies, and for the US to take money out of those economies for its own use ranks up there with Trumps accusations of Mexico sending its undesireables to America. For all we know, Obama is sending Americans abroad in record numbers so he can tax them and pay down the American debt with foreign money while providing zero services to these citizens. It's a disgusting practice.
When I lived in California I had two boats. California taxes them three times (four if I had purchased them there). When I move the logistics of moving two boats, two cars and a house full of stuff forced me to move one of the boats a month before I moved out of California. I unknowingly moved the first boat a few weeks before the deadline for the next tax year (in February I think). The state was pissed and didn't believe I had moved the boat. They "followed" me for a couple of years trying to get one more year of registration and property taxes out of me.
ReplyDeleteAlso the month before my move to California my primary vehicle gave up the ghost. Too many problems to fix so I bought a new pickup truck. Moved to California a month later and would you believe California decided that since I bought the truck a month before moving That is was the same as if I had bought it new there and they taxed me $1700 in sales tax. Probably illegal and certainly improper but hard to fight the entire state.