Renunciation of U.S. Citizenship – Taxation Aspects

Do you hold dual citizenship and are thinking of renouncing your U.S. citizenship to avoid the tax liabilities and reporting obligations that apply to American citizens? You should think again. Renouncing U.S. citizenship is serious and irreversible. Before starting this procedure, you must receive comprehensive professional advice that will ensure that you have seriously and thoroughly considered the full implications of the procedure, mainly but not only from the taxation aspect. The following article does not replace professional advice but will provide you with the basic information required to make an informed decision.


What is the meaning of renouncing U.S. citizenship?

Renouncing U.S. citizenship is a voluntary procedure in which a person waives his or her U.S. citizenship with intent. This is a personal procedure, and citizenship cannot be renounced for anyone else. Thus, you will not be able to renounce the citizenship of your children and they will be required to do so in person. Beyond that, it is an irreversible procedure, hence its primary importance.

Practically speaking, renouncing U.S. citizenship means:

  • Waiver of all rights to which you are entitled as American citizens and acceptance of the status of a “foreign citizen” before all American authorities (including the tax authority). Please note that as you become a foreign citizen to the U.S. Tax Authority, you will be subject to the tax rates applicable to foreign citizens, in so far as you generate any income originating in the United States.
  • Waiver of all benefits to which you are entitled as American citizens, including voting rights, U.S. citizenship for children born outside the United States, protection provided by the U.S. government if necessary, benefits, and tax returns.
  • If you do not have alternative citizenship you will be classified civilly as”stateless”.
  • Of course, from now on, any visit you make to the United States will require a visa.


How is the process of renouncing U.S. citizenship carried out?

Renouncing U.S. citizenship is not a simple process and must take place outside the United States and before a consular representative.

First, the person wishing to renounce his citizenship must make an appointment at the U.S. Embassy/Consulate. You can request to speak by phone before meeting with a consular representative who will clarify the meanings of the citizenship waiver.

The applicant must renounce his U.S. citizenship and attend a meeting with a number of required documents:

  • Proof of U.S. citizenship – passport/birth certificate.
  • Birth certificate from a foreign country as far as the applicant was not born in the United States.
  • A copy of the personal information enlisted in all passports held by the applicant.
  • Naturalization certificate as the applicant was naturalized in another country.
  • A U.S. naturalization certificate as the applicant was naturalized in the United States.
  • The application form for issuing an SSN number as such a form was submitted by the applicant.
  • A payment of $2,350 to be paid as a waiver fee.

During the meeting, the person will be required to answer the “U.S. Citizenship Waiver Questionnaire” and sign an understanding document in which he declares under oath and to the consular representative that he understands all the implications of the waiver.

All information will be transferred to the U.S. State Department, whose approval will be issued to the applicant for a “certificate of loss citizenship”.


The taxing aspect of renouncing U.S. citizenship – what is the exit tax?

Many seek to renounce their American citizenship thinking that they will get rid of the duty of paying tax and reporting the tax to the American tax authorities. The truth is rather different.

First, we will make it clear that anyone wishing to renounce their citizenship should submit (if not submitted so far) annual tax reports of the past five years. This obligation also applies in relation to the obligation to report foreign financial accounts as part of the FACTA reporting obligation. Moreover, if according to these reports, the applicant is found to be taxable – he will have to meet all of his tax liabilities.

Second, when renouncing U.S. citizenship, one might have to pay an exit tax – Expatriation Tax. Upon submitting the citizenship renunciation application, the applicant will also be required to fill out a tax form known as Initial and Annual Expatriation Statement 8854, in which he will report all of his assets and income.

If he finds that the applicant meets one of the following criteria, an exit tax will be in place:

  1. The net value of all applicant’s assets exceeds $2 million.
  2. The applicant’s annual income in that tax year exceeds $171,000.
  3. The applicant has not filed annual tax reports in the last five years.

In so far as one of the criteria is met, the assets of the applicant will be taxed. This is a conceptual sale of the applicant’s assets and a capital gains tax payment on the net profit from the sale of these assets. It should be noted that you may be able to enjoy an exemption regarding the part or fullness of the amount, all depending on personal circumstances.


In summary

The process of renunciation U.S. citizenship has serious implications, certainly from a tax point of view. We urge you not to initiate the proceedings until receiving professional counseling. MasAmerica’s team consists of American and Israeli accountants and lawyers who are well versed in all the tricks of the profession and will be happy to assist you in tax planning that will minimize and even completely diminish your tax liabilities.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

For American taxes consulting only
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