Are you a US citizen who has worked and resided outside the United States for most of your life and who finds it doubtful that you will retire to the US? Have you ever wondered why you are paying increasing amounts of income tax to the US without receiving any perceived benefit? If so, have you explored obtaining citizenship in another country?

Global citizenship

Citizenship in another country has always been available to the very wealthy. In the 1960s, 1970s and 1980s Switzerland and Monaco were popular choices. It was possible at that time to negotiate what your annual income tax would be, what your eventual estate tax would be and how many locals you were required to employ in your household annually.

A popular publication for international attorneys was titled How to Obtain A Passport, Legally and Illegally, in 60 countries. Prior to the internet, Tax Havens of the World was another popular publication. Today citizenship by investment is legally available in multiple countries.

Why would you want a second citizenship?

A second citizenship is a hedge against unforeseen economic and political turmoil. How many Syrians wish that they had done so years ago? Look at the number of Iraq and Afghanistan citizens who are fleeing to Europe as stateless immigrants let alone the tens of thousands from Africa attempting to reach Europe.

Individuals and their families are looking for freedom and security from discrimination, unequal treatment and freedom of expression, movement and travel. Excellent medical care in retirement and education for their children are key considerations. Privacy with respect to their business and personal affairs is an important factor.

If a key factor is to stop paying US income tax, then attention would need to be paid to obtaining citizenship in a country with either no income tax or a low income tax and also a country that has global income tax treaties.

How does one obtain citizenship in another country?

One buys it. The two most popular programmes are citizenship through an investment programme or citizenship by real estate investment. As an example we will assume a family of four who are looking for citizenship for both spouses and two children. A $300,000 contribution to the St Kitts and Nevis Sugar Industry Diversification Fund buys citizenship for the family of four. In Dominica a $200,000 contribution to the Economic Diversification Fund buys citizenship for the family of four. In Grenada a $200,000 contribution to the National Transformation Fund buys citizenship for the family of four. In all three countries there is no requirement to actually live there to obtain citizenship and a passport.

If you actually want to live in the country an alternative to a one-time non refundable contribution to a fund is to purchase real estate. In St Kitts and Nevis the minimum required investment in a government approved real estate development is $400,000. In Dominica the minimum required investment is a government approved real estate development is $200,000, in Grenada the minimum required investment is a government approved real estate development is $350,000.

If you are looking for something closer to Europe consider Malta. A £400,000 purchase or lease of real estate under the High Net Worth Individuals Scheme is all that is needed. Browsing the internet will likely yield another 50 countries that will grant citizenship in exchange for a contribution or a real estate purchase.

In the US the cost to purchase citizenship ranges from $500,000 to $1 million.

How many US citizens are relinquishing their citizenship and why?

Over the past four years the number has increased from about 1,000 a year to 4,000 a year to a projected 10,000 in 2015. Why? No one really knows. Many articles attribute the increase to Fatca, but the requirement to annually file a Report of Foreign Bank and Financial Accounts has been around for at least 30 years.

The names of individuals who relinquish US citizenship are published quarterly in the Federal Register. A perusal of the list indicates that about half the names appear to be of Asian extraction but without further information on the individual’s background this may be meaningless. Over the past 20 years we have assisted an average of five to ten individuals a year with the relinquishment of their US citizenship but the majority of these individuals were dual US/Bermuda citizens at birth who had decided that Bermuda would be their permanent home and saw no benefit in continuing to pay US income tax.

For those who had only US citizenship their country of choice for a second citizenship was primarily driven by no or low income taxes and their economic circumstances.

How do you relinquish your US citizenship?

Quite easily. Simply call the nearest Embassy/Consulate and ask for an appointment to relinquish your US citizenship. At your initial meeting you will asked to complete State Department Forms DS-4079, DS-4080, and DS-4081 that you can download from your computer and bring with you. At some point you will be instructed to go to a window and pay the $2,350 administration fee that is required for renouncing your US citizenship. You will then be asked to sign both copies of Forms DS-4080 and DS-4081. Then you will then be asked to raise your right hand, and read the “formal renunciation of your US nationality” oath that is on Form DS-4080.

You will be given a receipt for the $2,350 fee and will be told that the process will take a few months at which time you will be called to return to the embassy/consulate. At that time you will be presented with a “Certificate of True Copy” of your Form DS-4083, signed by a consular officer of the US. As of your first visit you are no longer a US citizen.

A column on planning to renounce your US citizenship will be published at a later date.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (I) avoiding penalties imposed under the US Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the president of ETS Ltd, PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com