Asset Protection BLOG - Mark Nestmann: Expatriation: What Happens Once You Give Up Your U.S. Citizenship?

For Americans, "expatriation" means giving up U.S. residence, citizenship and passport.

That's a radical step, but expatriation is the only way a U.S. citizen or long-term resident can legally and permanently sever the obligation to pay tax on worldwide income. And as a result of the escalating anti-offshore vendetta by the Obama administration, it may eventually be the only way that someone born in the United States can ever hope to invest or do business outside the United States.

But not every expatriate is ready to sever ALL relationships with the United States. And fortunately, there's no need to do so. Here are some of the questions our clients ask most frequently about their future dealings with the United States after they expatriate:

Question: Can I keep U.S. bank and securities accounts after I expatriate? How are income and gains taxed?

Answer: Yes, you can, so long as the bank or broker accepts non-U.S. clients. However, you will need to notify the bank or broker of your new status as a former U.S. citizen and file an IRS form with them indicating that status. Bank account interest and capital gains from securities are generally tax-free with respect to a non-resident alien. Dividends may be subject to a withholding tax up to 30%. The exact amount depends on the provisions of the tax treaty (if there is one) in effect between the United States and your new country of residence. That country may also tax this income.

Question: Am I eligible to receive social security benefits? How are they taxed?

Answer: Yes, unless you reside in a country subject to U.S. sanctions (e.g., North Korea). Again, social security payments may be subject to a withholding tax up to 30%, depending on whether or not a tax treaty is in effect between the United States and your new country of residence. And again, that country may also tax this income.

Question: Am I eligible for Medicare benefits once I turn 65?

Answer: If you are 65 or older and eligible for Social Security benefits, you're also eligible to receive Medicare. There is no requirement that you be a U.S. citizen to receive Medicare benefits if you paid into the system during the time you lived and worked in the United States. However, Medicare benefits aren't payable for medical procedures outside the United States. You would need to return to the United States for medical treatment at an approved facility or from a qualified provider. This would be possible only if you can obtain a visa allowing visits to the United States, or possess a passport from a country on the Department of State's "visa-waiver" list. You may be able to obtain a "medical visa" permitting you to visit the United States for the purpose of obtaining medical treatment.

Question: How long can I remain in the United States on future visits without being considered a resident for U.S. tax purposes?

Answer: Assuming you have a valid multi-entry visa or a passport from a visa-waiver country, you can visit the United States anytime. You can stay up to an average of 120 days/year over a four-year period and no longer than 180 days in any single year without being subject to U.S. tax on your worldwide income. If you stay longer than that, you'll not only need to pay tax on your worldwide income, but your worldwide estate will also become subject to U.S. gift and estate tax. In addition, lengthy stays in the United States may violate your visa status, possibly resulting in a prohibition on returning for up to 10 years.

Question: How long does it take to receive a "certificate of loss of nationality" from the U.S. State Department after I formally relinquish or renounce U.S. citizenship? Are there embassies/consulates that are known to be more expedient in this regard?

Answer: It has taken our clients 6-12 weeks to obtain this certificate in most cases. However, in one case, it took almost a year. In this case, the consular official before whom the client appeared was hostile to the concept of expatriation. The official reportedly refused to forward the paperwork to the State Department until the client filed a formal complaint. Some consular officials are more forthcoming than others, and we offer introductions to "friendly" embassies to our clients.

(The Nestmann Group, Ltd. can assist individuals interested in the possibility of expatriation through all phases of the process, from obtaining alternative citizenship and tax-advantaged residence to formally giving up U.S. citizenship and passport. Please contact us for more information at info@nestmann.com.)