May 20, 2012
Should You Renounce Your U.S. Citizenship Like Facebook Co-Founder Eduardo Saverin?
Wall Street Journal: Should You Renounce Your U.S. Citizenship?, by Laura Saunders:
For some people, the best tax strategy is simply to pack up and leave. That is the lesson from the disclosure that Eduardo Saverin, the 30-year-old billionaire who helped found Facebook, has renounced his U.S. citizenship to become a resident of Singapore.
Singapore offers huge tax advantages for people like Mr. Saverin, whose wealth is primarily in the form of capital gains. The Southeast Asian city-state has no capital-gains tax and its top income-tax rate is 20%—compared with rates of 15% and 35%, respectively, in the U.S. ...
Should you follow Mr. Saverin's lead and high-tail it to a lower-tax country? While it might seem tempting, renouncing one's citizenship has many drawbacks. ... Here are some considerations.
- Get ready for questions. Expatriation involves an exit interview with a U.S. official...
- You need somewhere to go. How to find a new home? ...
- You might owe an exit tax. U.S. citizens who expatriate are treated as though they sold all of their property the day before they renounce, even if they will continue to own it and pay property or other taxes. Capital gains (net of losses) are taxed at the current top rate of 15%, after an exemption of $651,000. The tax on some assets, such as an individual retirement account, will be at ordinary income rates up to 35%. ... tax applies to U.S. taxpayers whose net worth is greater than $2 million or whose average annual income tax for the past five years is $151,000 (adjusted for inflation). ...
- You will have to certify that you have been tax-compliant for the last five years. ...
- Your heirs could get a big tax bill. The U.S. heirs of wealthy taxpayers who renounce their citizenship usually owe inheritance tax equal to the U.S. estate tax on assets left to them by the expatriate. (This doesn't apply to spouses who are U.S. citizens.) ...
- You might find travel more complicated. ...
There is more: Under the "Reed amendment," named after a Democratic senator from Rhode Island, U.S. officials may bar entry to any person who renounced citizenship for tax reasons. This provision is rarely, if ever, invoked—Ms. Weintraub has never heard of a case—but it is on the books. Experts say the attention surrounding Mr. Saverin's case could revive it, and recently lawmakers proposed raising the exit tax.
Is all this hassle really worth a tax savings? You be the judge.
Prior TaxProf Blog Posts:
- Facebook Co-Founder Renounces U.S. Citizenship in Advance of IPO, Saving Millions in U.S. Taxes (May 11, 2012)
- Will Facebook Co-Founder's Renunciation of U.S. Citizenship Increase His U.S. Tax Bill? (May 12, 2012)
- Seto, Kleinbard Explain Tax Consequences of Facebook Co-Founder's Renunciation of U.S. Citizenship (May 13, 2012)
- Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship: $67 Million (May 16, 2012)
- Sen. Schumer Proposes 30% Tax on Facebook Co-Founder, Others Who Renounce U.S. Citizenship for Tax Purposes (May 17, 2012)
- WSJ: New Ex-Patriot Tax on Facebook Co-Founder 'Isn't Worthy of America' (May 18, 2012)
- Estate & Gift Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship Dwarf Income Tax Savings (May 19, 2012)
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