Surge In US Expats Returning Passports Due To FATCA

The cost of renouncing US citizenship has gone up with the introduction of the new Foreign Account Tax Compliance Act (FATCA) tax reporting rules. Many US expats are unhappy with their government because of special tax rules. The US is one of few nations to tax expats on their worldwide income – including earnings generated by offshore savings and income even if they live in another country. FATCA may be the last straw for many expats considering whether to give back their passports and become tax resident elsewhere. The FATCA reporting laws oblige tens of thousands of financial institutions around the world to report the balances and income from bank accounts and investments controlled by US taxpayers to the Internal Revenue Service (IRS). Fees hiked for expats The IRS then cross-checks the data against personal returns to make sure taxpayers pay the correct amount of tax. FATCA started on July 1, 2014 and the first reports are expected in Washington starting this month. Many tax experts in the US have blamed FATCA for an increase in US taxpayers returning their passports. Now, the US State Department, which administers citizenship renunciations, has increased the cost of giving back a passport – from $450 in July to $2,350 now. “The cost represents the true cost of processing the paperwork for renouncing citizenship,” said a State Department spokesman. “Our view is if you want to hand back you passport, then that’s not a problem, but you should pay the full cost of processing the application and not be subsidised by US taxpayers.” High taxes The State Department also revealed most US expats handing back their passports are in Canada, Britain and Switzerland. These three countries account for 75% of all ‘expatriation’ requests. US State Department under-secretary Patrick Kennedy claims high taxes on expat earnings and investments are behind most of the applications. He also hinted that a number of US businesses are looking to relocate their headquarters overseas due to the country’s high rate of corporation tax – which is 35% compared to the lower rate of 20% in the UK. Without revealing the current figures, the State Department indicated the number of expats handing back passports is 20 times higher in the US than other countries with comparable tax rates. The spokesman also explained an increasing number of financial institutions in Asia, South America and Africa are turning away US customers because of the high cost of FATCA compliance, and that some banks in the European Union are starting to follow the trend. – See more at: http://www.iexpats.com/surge-us-expats-returning-passports-due-fatca/#sthash.OYdczEfG.dpuf