Asset Protection BLOG - Mark Nestmann

How to Stop Expatriation in its Tracks

My recent blog entry describing how easy it is to expatriate really hit a chord.  Most responses were very positive.  But a few were downright hostile.

“How can you in good conscience encourage someone to revoke all ties to the United States,?” one reader wrote.  “Don’t you have any patriotism?”  Another reader predicted, “I have no doubt that some people who take your advice to expatriate may come to regret it later.”

That may well be true.  But if these readers—or anyone else who thinks that expatriation is unpatriotic, unnecessary, or could lead to “buyer’s remorse"—really want to end expatriation, there’s something Congress to do, immediately, to shut it down.

I’m not talking about more stringent anti-expatriation laws, such as the “exit tax” Congress enacted last year.  Nor am I speaking of enforcement of  the arguably unconstitutional “Reed Amendment,” which purports to exclude persons who renounce their U.S. citizenship for “tax motivated” from ever returning to the United States.  (Fortunately, this law, enacted in 1996, has rarely, if ever, been enforced.)

No, I’m proposing something radically different: for Congress to stop taxing the approximately six million U.S. citizens and green card holders living outside the United States.  And it’s really not that radical, because the United States is one of only two countries that impose tax based on citizenship, rather than residence.  Millions of U.S. citizens, some of whom have never set foot in the United States, are subject to U.S. tax on their worldwide income.  These U.S. citizens not only must pay U.S. taxes, but also comply with U.S. offshore financial disclosure requirements.  If they’re wealthy, they must retain tax experts to avoid paying U.S. estate tax. 

America’s current tax policy also places its non-resident citizens at a disadvantage in the international marketplace.  A Canadian, British, or Japanese passport holder working in, say, Hong Kong, is only subject to Hong Kong tax on local income.  But the U.S. citizen competing for the same job must deal with U.S. tax as well. 

Congress could end this discrimination simply by amending the U.S. Tax Code.  For instance, it could stipulate that any U.S. citizen or green card holder who leaves the United States for at least one full year is no longer subject to tax on their non-U.S. income.  After a longer period—let’s say five years—they would no longer be subject to U.S. tax on capital gains.  And, should they establish a new domicile outside the United States, they would no longer be subject to U.S. gift and estate taxes.

Enacting these common sense reforms would eliminate the tax incentives for U.S. citizens to expatriate.  It would, quite literally, end expatriation overnight.  These reforms would also put U.S. tax policy back in the international mainstream.  Of course, when non-resident Americans returned to the United States under this plan, they’d have to start paying U.S. tax again on their worldwide income. 

President Obama campaigned on the promise of “Hope” and “Change.”  This simple change in U.S. tax policy would give hope to the more than five million Americans who live overseas. 

Obama, do you hear me?

Copyright © 2009 by Mark Nestmann

What it's REALLY Like to Expatriate

There are a lot more former U.S. citizens than there once were.  Americans fed up with paying tax—and their government—are voting with their feet.  And they're doing it in much greater numbers than ever before.

Why might you wish to give up your U.S. citizenship? Primarily, because doing so is the only way that you can eliminate your lifetime obligation to pay U.S. taxes, no matter where you live. 

Expatriation is a major decision.  It means, for instance, that you no longer have the automatic right to enter or live in the United States.  You'll need to get a visa to do so, unless your non-U.S. passport qualifies you for visa-free entry.  In all cases, the Department of Homeland Security can deny you re-entry to the United States, and is under no obligation to tell you why.

However, the actual process of expatriation isn't as arduous as you might think.  You're likely to encounter bureaucratic incompetence, unexplained delays, and rampant stupidity.  But giving up your U.S. nationality is a legal right; one that even the inane employees of the Department of State understand. Here's one account my colleague Bob Bauman recently received from a now-former U.S. citizen on how the expatriation process really works:

As you wrote, the first step is to find alternative citizenship.  After attending a Sovereign Society meeting, I decided that my best bet was to gain citizenship in St. Kitts & Nevis by purchasing a property there for an amount over $350,000.  Then, I paid another $50,000 for two additional family members to apply for citizenship.  This whole process, including closing on the property, application, review of paperwork, citizenship, then waiting for issuance of the passport, took about nine months.

After moving all of my assets whose title I could change or move offshore, I purchased a home and moved to Panama.  Then it came time to surrender my citizenship.  From everything I could find on-line or in any books, I was expecting the surrender process to be rather grueling, including meeting one on one with a consular official sitting me under a bright light, interrogating me about reasons and taxes, then almost beating me with a rubber hose.  We are all aware of the onerous threats of what IRS can do if we have the nerve to try to escape the plantation.

Bob, I was absolutely dumbfounded at how EASY it really was.  No problems, no questions about anything, they were simply willing to cut me free.  I had thought I wanted an attorney with me, so I would have some idea which questions I legally had to answer and which I could refuse to answer.  It was just not necessary.  I believe IRS and the State Department tries to scare the hell out of us so we won't even try to surrender citizenship the process is far different than I envisioned.

There are a total of five forms needed.  All are available on-line on the State Department Web site.  The numbers for these forms are DS-4079 through DS-4083.  You complete these forms, and then take them along with your U.S. passport, birth certificate, Social Security card and new passport to the embassy.  If you are smart, you will also bring a typed letter explaining your reason for wanting to expatriate. 

Do not say ANYTHING about taxes.  My reasons were that I abhorred socialism, loved the Constitution, but was unbelievably sorry that we no longer followed it.  Then a clerk will re-type all the forms.  This took about two hours because of numerous typographical errors.  It is important to proofread every answer and every single line.  It took something like 10-12 different efforts to get all five forms finally completed correctly. 

A consular representative then came to the window, asked for my U.S. passport, asked me if I was really the person who wanted to expatriate, and whether I understood the consequences.  Then he signed a few papers, took my passport and said good-bye.  That was it!   Oh, he also told me I should contact the IRS to inform them of what I had done.  He said I would receive my certificate of loss of nationality in about four months.   He never asked me ANYTHING about taxes or finances.

After a follow-up call to the embassy four months later, I was told I could return and pick up my official certificate of loss of nationality.  They returned my U.S. passport with holes punched in it.  The next day I returned to the embassy to apply for a 10-year, unlimited visit VISA to come to the United States.  It was approved the same day.  I also applied for Social Security because I was now old enough to receive it.  You do NOT surrender your right to Social Security benefits by expatriating.

I thought it might be helpful to you to know what they ACTUALLY do to those who wish to surrender citizenship.  Regardless of how intimidating they want you to believe this process can be, at least in my case, NOTHING happened.

I am now a free, sovereign citizen of the world.  St. Kitts & Nevis charges me zero income tax, zero capital gains tax, and zero death tax.  I don't even have to file a tax return any longer for ANYONE.  Panama leaves me alone, so long as I pay my property tax and sales tax, and the U.S. no longer "owns" me. 

My St. Kitts & Nevis passport gets me almost anywhere in the world that I could have gone with my former U.S. passport.  With my 10-year visa, I can come back to visit the U.S. whenever I want.  Believe me, I don't want or need to come back very often, and there are lots of nice other places to see in this world.  And, if we are both on the same plane hijacked by terrorists, they'll kill you long before me. 

I have the very best of all worlds.  I live virtually tax-free in a beautiful country.  I actually have more freedom and liberty as a guest resident of Panama than I did as a citizen of the United States. 

I simply don't understand why there are not MILLIONS of Americans giving up their citizenship.  If only they knew how EASY it is, how practical it is and how much better for their financial health, there would be lines around the block at every U.S. embassy from those who realize there are better choices than remaining a U.S. citizen.

Copyright © 2009 by Mark Nestmann

Update to Billionaires Loophole report…and Other Stuff

I recently made some mostly minor updates and corrections to this report dealing with exit taxes, but expanded the discussion of "renunciation" verses "relinquishment" of U.S. citizenship. If you purchased this report in the last year, you can download the update by logging on to your account at Nestmann.com (instructions below).

Other News

Download our catalog. To order publications from the Nestmann.com bookstore by mail or fax, download our free catalog using this link.  

Secretary/order taking service!  You can also order our publications by phone.  Call +1 (602) 604 1524 and talk to a human seven days a week, 24 hours a day, seven days a week.  Our service can also take messages or patch calls to me during normal business hours.

Scheduling a consultation.  I do conduct personal consultations, but I'm booked 4-8 weeks in advance.  To set up a consultation, call me or e-mail me at info@nestmann.com to book an appointment. 

How to Log on to Your Nestmann.com Account. If you've ordered e-books from our bookstore in the last 12 months, you can log on to your account to receive the latest updates.  Here's how to do it:

* Open your browser (Internet Explorer works best).
* Go to https://secure14.inmotionhosting.com/~nestma5/catalog/login.php.
* Sign in with the e-mail address and password you used when you purchased the book.  If you don't remember the password, you can generate a new one.
* Scroll to the bottom of the page that comes up and click on the green 'Order History' button.
* Click the "View Order" link and you will be brought to an "order information" page.  At the bottom of this page you will see the number of downloads remaining.
* Click on this link to download the report.

If this procedure doesn't work, please contact us and we'll send you the updated report by e-mail.

Is Expatriation for You?

The United States is one of only two countries that imposes tax on a citizen's worldwide income, no matter where that citizen lives.  (The other country is, of all places, Eritrea.)

For citizens of most high-tax countries, it's easy to legally avoid the obligation to pay tax on your worldwide income.  You simply relocate to a lower-tax jurisdiction, or one that only taxes local income.  After an extended period—normally 1-2 years—you become "non-resident" for tax purposes.  You no longer have the obligation to pay tax on your worldwide income to the country that issued your passport.  You may, however, still be subject to gift and estate taxes. 

But not the USA.  To permanently disconnect from the obligation to pay U.S. income tax, U.S. citizens must not only leave the United States.  They must also take the radical step of giving up U.S. citizenship and passport.  This process (from a U.S. standpoint) is called expatriation.  Before giving up U.S. citizenship, they must acquire citizenship and a passport from another country. 

If you're wealthy, expatriating could result in big tax savings.  The total combined state-federal income tax burden for most high earners is close to 50%.  And President Obama promises to hike that burden to pay for his spending plans.  If you anticipate earning US$2 million over the next five years, expatriation could save you a cool US$1 million in income tax during that period.  Not to mention millions more in the years ahead, and millions more again in estate tax savings. 

Expatriation also eliminates the increasing difficulties that U.S. citizens face when they invest or do business overseas.  Most non-U.S. banks and brokers now prohibit anyone with any connection to the United States from opening an account.  This is a result of the U.S. government's intensifying crackdown against anything "offshore."  Foreign entrepreneurs may avoid joint ventures with U.S. citizens, for fear of U.S. tax or regulatory entanglements.  If you give up your U.S. citizenship and passport, you eliminate these problems.

Only a few hundred people, many of whom are not wealthy, give up their U.S. citizenship annually.  But despite this reality, expatriates remain vulnerable to political bombast.  The image of wealthy former U.S. citizens living tax-free in tropical paradises is an irresistible populist target.  Former Congressman Sam Gibbons, a Florida Democrat, once spoke of  "the despicable act of renouncing allegiance to the United States."  Former Congressman Martin Frost, a Texas Democrat, supported tax penalties on expatriates on the basis of "basic patriotism and basic fairness."  The result has been a series of increasingly stringent laws penalizing expatriate Americans. 

Until 2008, it was relatively easy to circumvent these anti-expatriation rules.  But last June, Congress replaced the existing law in its entirety with an "exit tax."  The exit tax establishes a legal fiction that you sell all your worldwide property the day before expatriation.  If you're a "covered expatriate" (which I'll define momentarily), you must then pay tax on this fictional gain.  Unrealized gains in non-grantor trusts and some retirement and pension plans are exempt from the exit tax.  Instead, payouts that would taxable to a U.S. person are subject to a 30% withholding tax. 

Only certain dual citizens and minors with few ties to the United States are exempted from these requirements.  Long-term green-card holders must also pay the exit tax, if they've lived in the United States for at least eight of the 15 years preceding expatriation. 

How are you supposed to pay the tax without selling your assets?  That's your problem!  However, the law permits deferral by posting acceptable security with the U.S. Treasury and paying an interest charge on the amount deferred.

Fortunately, the first US$600,000 of unrealized gain isn't subject to the exit tax.  This amount is adjusted annually for inflation, and for 2009 the exemption is US$626,000.  The exemption doubles for a married couple, both of whom expatriate. In addition, even if your unrealized gains exceed US$626,000, the exit tax only applies to you if you're a "covered expatriate."  This means you:

• Have a global net worth exceeding US$2 million (US$4 million for a married couple); and/or
• An average annual net income tax liability for the five preceding years ending before the date of expatriation the loss of U.S. citizenship or residence exceeding US$124,000 (adjusted for inflation, US$136,000); and/or
• Fail to certify under penalties of perjury that they have complied with all U.S. federal tax obligations for the preceding five years or fail to submit evidence of compliance as required by regulation.

There's also a very sneaky substitute estate tax provision in the exit tax law.  Let's say you expatriate, and then 20 years in the future make a gift to family members remaining in the United States.  If you're a "covered expatriate" at the time you make the gift, U.S. recipients must pay a tax when they receive it.  And not at ordinary income tax rates, but on the highest estate tax rate existing at the time!  However, a covered expatriate can make annual gifts up to US$13,000 to any U.S. person without a tax consequence to the recipient.  The US$13,000 exclusion is adjusted annually for inflation. 

The best that can be said about the exit tax is that it offers a relatively clean break with the U.S. tax system as of the date of expatriation.  Unlike prior law, there is no longer a 10-year period after expatriation during which punitive tax and immigration rules apply. 

Is expatriation for you?  The decision to give up U.S. citizenship is a serious one.  It also requires substantial advance planning, including the acquisition of a second passport, if you don't already have one.  It's a step you should take only after consulting with your family and professional advisors.  But it's the only way that U.S. citizens and long-term residents can eliminate U.S. tax liability on their non-U.S. income, wherever they live.  And it's a tax avoidance option that Congress may eventually eliminate altogether.

(The Nestmann Group can provide consultation on every aspect of expatriation, from acquisition of a second passport to the actual loss of U.S. nationality.  For more information, contact Mark Nestmann at info@nestmann.com.)

Copyright © 2009 by Mark Nestmann

Belgium: The Easiest Route to a EU Passport?

I had an interesting conversation over the weekend with a well-connected attorney I know in Europe.  He reminded me that Belgium imposes no capital gains tax, and as a result is attracting an increasing number of wealthy tax exiles.  And not only is it relatively easy to qualify for residence there, after three years you qualify for Belgian citizenship and passport.  That gives you the right to live and work in any of the other 26 EU countries.  You can also keep your current passport. 

The biggest drawback is that you have to learn French, although no one expects you to speak it perfectly.  You also have to show some degree of integration in Belgium.  But if you learn some French, rent an apartment, and appear to be settling down in Belgium, you'll probably qualify for a Belgian passport.  Especially if you're willing to live there most of the time, Belgian residence might be worth considering.

Copyright © 2009 by Mark Nestmann

Are You Ready for a "Wealth Tax" from Obama?

Pretend, just for a moment, that you're Barack Hussein Obama.  You have big spending plans—national health insurance, two wars, and a trillion dollar bailout for your friends on Wall Street.  Not to mention paying for the soaring costs of Social Security and Medicare.

Unfortunately, revenues simply aren't keeping up.  Your Treasury Secretary, accused tax evader Timothy Geithner, tells you that the unfolding recession is starving the country for tax revenue.  Indeed, just as you unveiled your trillion-dollar national health plan, Tricky Timmy informed you that federal tax revenues were dropping the fastest since 1932, at the height of the Great Depression.

What to do—cut spending?  Well, Obama did challenge his cabinet in April to come up with a whopping US$100 million in budget cuts.  That's out of an estimated 2009 budget deficit exceeding US$1 trillion, perhaps more.  To put that in perspective, Harvard economics Professor Greg Mankiw commented:

"…[I]magine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had to be cut? By $3 over the course of the year–approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.”

But seriously, what could Obama do to make a significant reduction in the deficit? Obviously, it won't be to cut spending.  Instead, Obama needs to raise hundreds of billions in additional revenues.  And he needs to do it very quickly.

Tricky Timmy suggests that higher income taxes on rich folks that make over US$250,000 annually may raise a hundred billion dollars or so annually, but at the expense of depressing consumer spending by about the only segment of the population that can afford to spend.  

Well, here's an idea that Obama and Tricky Timmy might be considering, although I must emphasize that nothing official along these lines has yet been proposed: a tax, small at first, but potentially growing, on everything you own, anywhere in the world.  A "wealth tax."  

And when I say "everything," I mean everything:

• The equity in your home
• Your equity in any other real estate you own, anywhere in the world
• The value of any business you own
• The value of your retirement plan
• The cash value of your life insurance policies
• The value of your securities portfolio
• The value of any assets held for you in trust

Indeed, with a wealth tax, you'll need to declare the value of those gold coins buried in your basement, the cash under the mattress, and of course, previously non-reportable offshore investments.  

From Obama's perspective, a wealth tax would have two powerful advantages.  

1. It would generate considerable revenue on its own, although perhaps not as much as Obama and Terrible Timmy would like.  For instance, the French "solidarity tax" on wealth—perhaps the world's most severe wealth tax—raises only the equivalent of US$2.5 billion annually.  The U.S. economy is five or six times larger than France's so Obama might get his hands on an additional US$15 billion or so if he imposed a comparable tax.  That's still only a little more than 1% of the projected 2010 budget deficit, but it's a lot more than Obama's US$100 million challenge to his cabinet.
2. More importantly, a wealth tax would make it illegal to hide wealth in any form from the government.  And Congress can increase the tab anytime it wants. 

Of course, the natural reaction of  many wealthy people to a wealth tax will be to move their wealth, and perhaps themselves as well, out of the United States.  This is exactly what's happened in France, from which thousands of wealthy tax exiles have fled.  And this may be the real reason for the government's greatly increased interest in any assets you hold offshore: to flush out assets for the future imposition of wealth tax.

The possibility of a wealth tax is just another reason why if you're a U.S. citizen or long-term U.S. resident with substantial assets, you need to consider the admittedly radical step of expatriating from the United States.  This means acquiring a second nationality and passport, and then subsequently giving up U.S. citizenship and passport or U.S. green card status.  You also need to live outside the United States. 

Expatriation is the only way that a U.S. citizen or long term resident can legally eliminate their obligation to pay U.S. income, estate, gift, and capital gains taxes.  To learn more about expatriation, and the potentially huge payoff in tax savings, check out my "Billionaire's Loophole" report here.

Copyright © 2009 by Mark Nestmann

What Can You Do if Your Country Doesn’t Want You Back?

Suaad Hagi Mohamud is a naturalized Canadian citizen.  But for more than three months this summer, Canada refused to acknowledge her as such, leaving her to rot in a Kenyan jail.

Mohamud’s ordeal began on May 21, when she tried to leave Kenya, after traveling there from Canada to visit her aging mother.  However, Kenyan border officials claimed that the image on her passport didn’t match her actual facial features.  They refused to allow her to board her flight. 

To prove she was who she said she was, Mohamud produced numerous identification documents:

• A Canadian driver's license
• Proof of health insurance in Ontario
• A Canadian social insurance card
• A certificate of Canadian citizenship
• Two Canadian bank cards
• A shopper’s card from a Canadian drugstore
• A letter from her employer in Toronto

She even showed authorities a recent dry cleaning receipt from One Hour Brighten Cleaners in Toronto. 

It wasn’t enough.  The next day, the Canadian High Commission (the agency responsible for consular services for Canadian citizens abroad) voided her passport and confiscated it.  The Commission then informed Kenyan authorities that Mohamud was an imposter.  No less an authority than Canadian Foreign Minister Lawrence Cannon announced that "there is no tangible proof" Mohamud was Canadian.

Kenya subsequently charged Mohamud with identity fraud and entering the country illegally using a forged passport.  She was jailed in Langata Women's Prison pending trial for these offenses. After eight days in prison, she managed to raise money for bail, but was not permitted to leave Kenya. 

By confiscating Mohamud’s passport, Canada rendered her stateless.  While Canada has signed an international treaty agreeing not to take such an action, the treaty apparently doesn’t apply if you’re a naturalized Canadian citizen with black skin and thick lips. 

Fortunately, Mohamud’s family in Toronto was able to hire legal counsel to plead her case before the Canadian courts.  The media began to take an interest in her plight, and her case started to embarrass the Canadian government. 

On July 22, Canada requested that Kenya delay her trial for identity fraud pending DNA testing of herself, her son and her former husband.  On August 10, the results came in.  They showed a 99.99% probability that she was the mother of the boy who claimed to be her son in Toronto.

Four days later, Kenya dropped all charges against Mohamud and allowed her to leave.  And on August 15, Mohamud returned to Toronto to be reunited with her son.

It’s easy to blame Kenya and Canada for causing this mess, but there’s a larger issue at stake.  Your passport isn’t your property.  It’s your government’s property.  Your government can take it away anytime, under whatever veneer of legality they find expedient.

How can you protect yourself?  One way is by acquiring a second passport.  Most countries permit dual citizenship (including the United States and Canada), and if your primary passport is confiscated, your second passport prevents you from becoming a stateless person.  And while you probably won’t be able to use your second passport to re-enter the country that confiscated your primary passport, you’ll at least be able to travel elsewhere.

If you don’t qualify for a second passport based on residence, ancestry, marriage, or religion, a handful of countries offer "instant" citizenship in return for an economic contribution. The Commonwealth of Dominica, the Federation of St. Kitts & Nevis, and Austria are the only countries with an official, legally mandated, citizenship-through-investment program.

In all three of these economic citizenship programs, applicants must pass a strict vetting process that includes a comprehensive criminal background check.

The Nestmann Group, Ltd. can assist individuals seeking alternative citizenship and tax-advantaged residence. Please contact us at info@nestmann.com for more information.

Copyright © 2009 by 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.)

Copyright © 2009 by Mark Nestmann

Australia is Cracking Down on Expats, Too!

It's nice to know that you're not alone.  And courtesy of Australia, U.S. citizens living abroad no longer need to feel they're the only ones being discriminated against by their government. 

The United States is the only major country that imposes tax on its citizens regardless of where they live.  Even if you've never lived in the United States, or left decades ago, if you're a U.S. citizen, you're liable to pay the same income, capital gains, gift and estate taxes as someone who's lived here all their life.   (There's one major exception—the Foreign Earned Income Exclusion—but this program is far from perfect, and every year bills are introduced in Congress to end it.)

Now, Australia has made it more difficult for its citizens living there or anyone else "tax resident" in Australia to become a "foreign resident" for Australian tax purposes.  On June 23, the Australian Senate enacted legislation that imposes Australian income tax on most Australians working abroad for periods under two years.

Australian exapts can reduce this assessment if a tax treaty permits offset of any foreign taxes paid against Australian tax, or if they can otherwise prove they already paid tax on the same income in another country.  They may also be able to reduce it if they can demonstrate a "permanent abode" in another country.  But that may not be easy to do for an assignment of only two years, particularly if they leave family members behind and make regular visits to Australia. 

To add insult to injury, Australia also imposes an "exit tax" on the unrealized gains of any long-term resident who becomes permanently non-resident for tax purposes.  The only way to avoid paying the exit tax is to elect to treat all assets you own when you leave Australia, anywhere in the world, as remaining in the Australian tax net. 

I suspect many other high-tax countries will join in war on expats in the near future.  Germany already taxes former long-term residents living in low-tax countries who retain substantial contacts in Germany.  Canada imposes an exit tax on the unrealized capital gains of long-term residents when they leave.  And of course, the United States now has its own exit tax, courtesy of the "conservative" President George W. Bush.

None of these ideas are that new.  Nearly a decade ago, a committee appointed by the United Nations published a report that proposed that governments permanently tax the income of emigrants.  In other words, if an Australian businessman moved to Dubai permanently, Australia would have the right to tax his income for the rest of his life.  The U.N. report also helpfully proposed an "International Tax Organization" that would essentially function as a global tax collector.  Its job would be to continue collecting taxes from pesky emigrants seeking to avoid them by living in a low-tax or no-tax jurisdiction.

I suspect that as time progresses, U.S. citizens won't be alone in needing to give up their citizenship to avoid the global tax net.  Whether or not high-tax governments will create an International Tax Organization to pursue them remains to be seen.

The Nestmann Group, Ltd. can assist individuals seeking alternative citizenship and tax-advantaged residence. For more information, click here.

Copyright © 2009 by Mark Nestmann

Negotiate Your Own Tax Treaty in Switzerland

Two days ago, I met with a Swiss tax attorney in Zurich to discuss one of Switzerland’s little-known tax advantages: lump-sum taxation for wealthy foreigners.

If you commit to pay one of Switzerland’s cantons (states) a guaranteed sum each year in tax payments, you’re under no obligation to pay any other Swiss income taxes.  The sum you must pay annually varies from canton to canton, and not all cantons offer such lump-sum tax deals (forfait in French or Pauschale in German).  For instance, voters in Zurich recently ended that canton's lump sum tax regime. 

To qualify for a lump-sum tax arrangement, you must first apply and receive a residence permit.  You must also not work in Switzerland, and cannot have worked in the country for the preceding 10 years.

Of the approximately 4,000 foreigners living in Switzerland under a lump-sum tax arrangement, most live in the cantons of Vaud, Valais, Geneva, Bern, and Graudunden.  The lowest-cost arrangements are in more remote, less urbanized cantons, with lump-sum tax deals available for as little as a guaranteed payment of approximately US$70,000 annually. 

Even if you don’t qualify for a lump-sum tax deal, if you’re financially independent and don’t need to work in Switzerland, you may qualify for Swiss residence.  You’ll need to pay tax on your worldwide income according to Swiss rules, but the total rate doesn’t usually exceed 40% and in most cases is much lower. 

Unfortunately, U.S. citizens can’t benefit from the Swiss tax regime.  That’s because unlike virtually every other country in the world, the United States taxes the worldwide income of its citizens, no matter where they reside.  The only way an American can take advantage of lower income taxes elsewhere is to first obtain a passport from another country, and subsequently to give up U.S. citizenship. 

This process of “expatriation” is a radical step.  It’s only suitable for U.S. citizens who are willing to permanently disconnect from the United States and live somewhere else—although it’s now possible for a former U.S. citizen to visit the United States for an average of up to 120 days annually without becoming subject to U.S. taxes on their worldwide income. 

The Nestmann Group can assist with every aspect of this process—from obtaining a second passport to the selection of an alternative residence through the act of expatriation.  Please don’t hesitate to contact us at info@nestmann.com if you think you might be a candidate for expatriation.

Copyright © 2009 by Mark Nestmann