Taxes Making Renouncing Citizenship Increasingly Attractive for Americans Overseas
The U.S. is now a place from which you flee
The US is considered to have the longest arm when it comes to tax collection. US citizens as well as green card holders are expected to pay tax on their worldwide income. This means that even if they migrate and no longer reside in the US, their US tax duties remain and they must pay US tax on their foreign income.
In 2010, the US government issued the Foreign Accounts Tax Compliance Act (Fatca). Under these new rules, foreign financial institutions are obliged to report to the Internal Revenue Services (IRS) about the foreign financial accounts held by US persons (citizens and green card holders). This came in addition to the commitment already in place for US persons to declare their worldwide income.
Currently, the regulatory authorities in UAE are formulating procedures to facilitate compliance with the US Fatca and set clear instructions for financial institutions under their supervision.
Once such framework is place, it will be very difficult for US expats to evade paying tax to US on their "tax-free" UAE income.
The question that many have been increasingly asking themselves is if it perhaps make more financial sense to renounce US citizenship altogether.