UPDATE
We are looking for particular ways that U.S. tax law/citizenship law affect the citizens and residents of the various countries represented here (on Brock, Facebook etc.)
For example in Canada, the primary problems are the government-registered savings plans(primarily deemed as foreign trusts) which suffer from mis-matched timing and loss of full tax-deferral; the inability to invest in Canadian Mutual Funds due to PFICs; capital gains tax triggered by the sale of principal residence; pensions being treated as foreign trusts, etc. Is it the same in UK, France, Germany, Switzerland, Singapore, Hong Kong, Israel, Japan etc? What other unique situations occur due to the incompatibility of U.S. tax law and your country’s tax laws? What is the interplay produced by the citizenship laws of your country ? Does your country allow for dual citizenship?
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Cross-posted from citizenshipsolutions
by John Richardson
This is post is “based on” (not identical to) one of two submissions that I submitted in response to Senator Hatch’s request for submissions regarding tax reform.
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Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?
The Internal Revenue Code mandates that ALL “individuals” , EXCEPT “non-resident aliens”, are subject to full taxation, on their WORLDWIDE income, under the Internal Revenue Code. The word “individuals” includes U.S. citizens regardless of where they live and regardless of whether they are citizens and residents of other countries where they also pay tax. This means that, by its plain terms, the United States imposes full taxation on the citizens and residents of other nations, because they are also (according to U.S. definitions) U.S. citizens. The United States is the only country in the world that has a definition of “tax residency that mandates full taxation based ONLY on citizenship.
How “U.S. citizenship” and U.S. “taxation” interact
Principle 1: The United States is one of the few countries in the world that confers citizenship based SOLELY on birth on its soil.
Principle 2: The United States is the ONLY country in the world that imposes full taxation ON THE WORLD INCOME of its citizens, REGARDLESS OF WHERE THE U.S. CITIZEN LIVES IN THE WORLD.
Bottom line: The United States is the ONLY country in the world that imposes full taxation, on WORLDWIDE income, based ONLY on the “place of birth”!
A practical example: A person whose only connection to the United States is that he was born in the United States, who lives in Canada (and may have never lived in the United States and whose only income is earned in Canada), is required to pay U.S. tax on that income.
This resident of Canada is treated AS THOUGH HE WAS A U.S. RESIDENT.
NOTE ALSO THAT THIS INDIVIDUAL IS REQUIRED TO PAY TAX TO CANADA! He is subject to “double taxation”.
Therefore: What academics and government officials refer to as “citizenship-based taxation” (they really don’t understand its practical effects) is PRIMARILY “place of birth taxation” and therefore a convenient way to impose U.S.
taxation on the citizens and residents of other countries. As a blog devoted to “citizenship taxation” (noting the difference between the theory and reality) points out:
“A supporter of citizenship taxation is someone who THINKS about “citizenship taxation”. An opponent of citizenship taxation is anybody who has tried to LIVE under citizenship taxation.”
How did this happen? It certainly didn’t start this way!
The evolution of “U.S. citizenship”
The result of legislative change and various U.S. Supreme Court decisions (primarily
Afroyim ) has meant that “U.S. citizenship” is far easier to obtain and far harder to lose.
Furthermore, as people become more and more mobile, it is not unusual for somebody to have been “Born In The USA” but live outside the USA.
Global mobility is now the rule, rather than the exception.
The evolution of U.S. taxation and the Internal Revenue Code
The Internal Revenue Code has become more and more complex and impacts more and more activities of daily life.
Because “U.S. citizens” (even though they are citizen/residents of other
countries) are subject to U.S. taxation, they have been tremendously impacted by the “creeping complexity” of the Internal Revenue Code (which applies equally to ALL Americans wherever they may live).
This “creeping complexity” has evolved slowly through the years. The problems have been exacerbated because Congress does NOT consider that when amending the Internal Revenue Code they are impacting the lives of tax paying residents of other nations (who happen to be U.S. citizens).
Congress is “indifferent” to the plight of Americans abroad (indifference being one of the worst forms of abuse).
Through the years, slowly and consistently …
The evolution of the Internal Revenue Code combined with ease of retaining U.S. citizenship has built a “fiscal prison” (legislative brick by legislative brick), in which to keep the tax paying residents of “OTHER NATIONS”, who just happen to have been born in the United States.
Tax Reform 2017
The United States is “making noises” about “tax reform”. Senator Orrin Hatch requested submissions from “steak stake holders” on what should be included in tax reform. He has clearly received (as did the
Ways and Means Committee in 2013 and the
Senate Finance Committee in 2015) many suggestions advocating the repeal of “citizenship-based taxation”.
As noted at a site compiling the submissions of those affected by U.S.
extra-territorial taxation:
In January 2015 the US Senate Finance Committee (SFC) launched five working groups to study and propose reforms to the United States Tax Code, including one devoted to individual taxation and another to international taxation. In March the SFC called for public submissions to the five working groups. On April 29 those submitted documents became publicly available on the SFC website.
Of the 347 submissions to the International Taxation working group, 245
(71%) were about issues of concern to US persons living outside the USA, the rest being about corporate taxes. Of the 448 submissions to the Individual Taxation working group, 215 (48%) focussed on taxation of persons outside the USA.In July 2015 the International Taxation working group released its official report. Almost the entirety of its 82 pages is devoted to corporate taxes, with a mere three sentences tucked into its very last pages, acknowledging the existence of flesh and blood individuals, but offering no recommendations.
Hundreds of letters from Americans abroad, including many brave enough to incriminate themselves for the sake of amending unjust laws, but also scores of extensively – researched proposals for international tax reform, as well as documents from respected organizations, including the American Chamber of Commerce, Republicans Overseas, and Democrats Abroad, were all summarily ignored.
Changing the language of the discourse …
Clearly the effectiveness of “repeal citizenship-based advocacy” will depend on how “citizenship-based taxation is described”. All submissions (of which I am aware) describe the intolerable impact of “citizenship-based taxation” on AMERICAN CITIZENS abroad (they are discriminated against in many aspects of life). It is not unusual for Americans abroad to pay higher U.S. taxes than a comparably situated Homeland American. As noted recently by Representative Holding, U.S.
“citizenship-based taxation” impacts U.S. employers (it’s simply too expensive to incur the additional U.S. tax cost of hiring Americans).
Examples of this “U.S. centric” perspective are represented by the able submissions of Jackie Bugnion, ACA (American Citizens Abroad) and Democrats Abroad (all of which argue strongly and effectively that the United States should stop imposing taxation on U.S. citizens who live in and pay taxes to other countries).
Although these are all excellent submissions, none of them highlights the fact that U.S. “citizenship-based taxation” has a very large impact on the citizens and residents of other nations. Given the large number of “accidental Americans” and other kinds of “dual citizens”, this is no small matter. (I note also that the largest number and percentage of submissions regarding U.S. tax reform (in general) comes from those impacted by U.S. extra-territorial taxation and FATCA.)
I suggest that the phenomenon of “citizenship-based taxation” NOT be described exclusively from the perspective of U.S. citizens and U.S.interests. Furthermore, I suggest that the descriptive label of “Citizenship-based taxation” be avoided and a label that conveys the idea of “Taxing the citizens and residents of other countries” be adopted.
What is an appropriate way of “labeling” (and thinking about) the uniquely American phenomenon of defining “tax residency” in terms of citizenship (and thereby imposing U.S. taxation in an extra-territorial manner)?
Because taxing the residents of other countries results in infringing the sovereignty of other countries and in the siphoning of capital from those countries to the USA, perhaps an appropriate label would be:
“U.S. Tax Colonization” – (One person at a time)
Adopting a “new label” may change the terms of the discussion.
Descriptive label 1 – “Citizenship-based taxation”: Some (the overwhelming majority) describe this phenomenon (which is unique to the United States) as “citizenship-based taxation”. Although true, this descriptive label is a very “U.S. centric” description. It accurately describes what takes place, but it ignores the practical reality of who it actually impacts and how it impacts those persons.
It’s as though, a U.S. citizen is also a U.S. resident. It also ignores the fact that U.S. citizens who are resident/citizens of other countries pay taxes to those countries. (What? It is sometimes a surprise to “Homeland Americans” that
U.S. citizens who live in other countries are required to pay taxes to those other countries.)
(See the first video in Appendix A to see Representative Holding identify how U.S. “citizenship-based taxation” is harming the lives of those Americans who leave the United States.)
Descriptive label 2 – “U.S. Tax Colonization”: This label accurately describes the actual impact of “citizenship-based taxation”. It accurately reflects the reality that those U.S. citizens who do NOT live in the United States pay taxes to the countries where they live. The reality of defining “tax residency” in terms of “citizenship”, is that it forces the citizen/residents of other countries to comply with the full terms of the Internal Revenue code. (A Canadian resident must pay taxes to the United States in addition to paying taxes to Canada.)
The use of citizenship as a sufficient condition for taxation is NOT a theoretical issue. It is a “real” problem with “real” consequences inflicted on those who are the citizens and residents of other countries. If you have read this far, you might stop and consider what it would be like to be simultaneously subject to the tax laws of two jurisdictions.
(See the second video in Appendix A to see McGill Professor Allision Christians describe how the U.S. taxation of Canadian citizens, resident in Canada is destroying the lives of those affected.)
Independence Day – July 4, 2017
On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.
On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American.
But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.
As I write the post, I note with interest a “renunciation discussion”
taking place on Facebook in real time – demonstrating the “reality on the ground”:
https://www.facebook.com/groups/AmericanExpatriates/permalink/826904984142242/
A “follow up” discussion (post renunciation) takes place here:
https://www.facebook.com/groups/AmericanExpatriates/permalink/829688267197247/
I live in Toronto, Canada. I assist those who are American citizens living outside the United States to respond to the “layers upon layers”
of rules coming from the Internal Revenue Code (and other pieces of extra-territorial legislation) that affect and attempt to control EVERY aspect of their lives. Although these people are usually citizens and residents of other countries, the United States claims the right to control almost all aspects of their lives BECAUSE IT CONSIDERS THEM TO BE U.S. CITIZENS. (It is significant that many of those who the U.S. considers to be its citizens do NOT consider themselves to be U.S. citizens.) In many cases, the best response is to renounce U.S. citizenship AKA commit “citizide” (the formal process of terminating U.S. citizenship).
The U.S. extraterritorial application of its “Tax, Form and Penalty”
edicts, impacts most aspects of their lives, including either tax consequences and/or “reporting requirements coupled with penalties”. The Internal Revenue Code triggers either U.S. tax or U.S. reporting requirements (or both) on (without limitation): they way they carry on business, who they marry, the cost of divorce, the extent to which they are allowed to have pension plans, their opportunities for retirement and financial planning, how they plan for their death and more. YET, THESE PEOPLE ARE THE CITIZENS AND TAX PAYING RESIDENTS OF OTHER NATIONS!
The difficulty (or near impossibility) of being a “tax resident” of both the United States and another country is demonstrated in Ms. Bugnion’s comprehensive submission and one of my previous posts “How To Live Outside in an FBAR and FATCA World” found here.
Those who contemplate compliance with these “citizenship-based rules”
learn that they must choose between compliance with the U.S. laws governing Americans abroad or the opportunity to engage in normal retirement planning. As any “expatriation lawyer” will confirm, they cannot have both.
I have authored numerous submissions which detail the “technicalities” for how the Internal Revenue Code, the Bank Secrecy Act and other U.S. laws restrict the life opportunities of Americans who live in other countries. The “technicalities” are less relevant. What is relevant is WHAT THE TECHNICALITIES mean in the lives of those they affect. Rather then repeat the “technicalities” (described in previous submissions) let me just say
that:
The “tradition” (seriously the attempts to justify “citizenship-based taxation” as “sound tax policy” are laughable) of imposing EVERY section of the Internal Revenue Code on any “U.S. citizen” who lives outside the United States has resulted in a situation where:
– the United States is inflicting the Internal Revenue Code on
people who are TAX PAYING RESIDENTS OF OTHER NATIONS and who are ALMOST ALWAYS CITIZENS of those other nations
Thoughts on U.S. tax policy and the “moral capital” of America
What the USA calls “citizenship-based taxation” (the U.S. tradition of requiring U.S. citizens who do NOT live in the United States to pay U.S.
tax on their income earned outside the United States) is in effect a set of rules that require the resident/citizens of other nations to abide by the rules of the Internal Revenue Code.
The sheer number of submissions, from Americans abroad (to the House Ways and Means Committee and Senate Finance Committee in 2013 and 2015) indicates that U.S. tax policies are creating severe hostility toward the United States. The United States simply cannot impose taxation on the citizens and residents of other nations (in effect siphoning capital from those nations) without creating ill will.
Renunciations of U.S. citizenship are “forced” and “increasing”
U.S. “citizenship-based taxation” has and will continue to drive (I believe “force”) renunciations of U.S. citizenship
From a U.S. perspective this may not matter. That said, forcing people to renounce U.S. citizenship (at tremendous financial cost to themselves – including the possibility of the S. 877A Exit Tax) is one more circumstance fueling “anti-Americanism”. (The “Exit Tax” rules are so punitive that (when applicable) they will impose
full U.S. taxation on the “present value”
of Canadian pensions earned while the person was a resident of
Canada!)
There is NOT a single circumstance where “anti-Americanism” can be good for the United States.
Those who fail to learn from history are doomed to repeat it
History (particularly American history) suggests that in the long run the
citizens of other countries will NOT tolerate taxation from the United States. Americans are taught that the American Revolution was based largely on unjust taxation from England.
History (particularly American history) demonstrates the problems of
imposing one country’s citizenship on the citizens of other countries. Americans are taught that the War of
1812 was partially the result of the British claiming that U.S. citizens were really British citizens.
History (as described by tax historian Charles W. Adams) demonstrates that the “rise and fall of civilizations” is impacted by tax policy.
Recommendation for U.S. tax reform 2017
The United should not impose U.S. taxation on individuals who do not reside in the United States (unless the income has a U.S. source). The Internal Revenue Code should be amended to define “tax residency” in terms of “residence” (as does the rest of the world) and NOT citizenship.
Appendix – It’s a matter of perspective – Here are at least 3 perspectives
A. Label 1: The “Citizenship-based taxation” perspective – how it unfairly affects and destroys opportunities for “U.S. citizens”
living outside the United States
Remarkable @RepHolding understands how U.S. "citizenship-based taxation" of individuals disadvantages America! https://t.co/Bw8beebRhW
— Citizenship Lawyer (@ExpatriationLaw) July 17, 2017
An interesting facebook discussion about this Representative Holding’s questions is here.
B. Label 2: “Imposing U.S. taxation on the citizens and residents of other nations” perspective – How the United States is destroying the lives of Canadian citizens resident in Canada
It's a #FATCA: USA taxation on Canadian source income earned by Canadian citizens resident in Canada https://t.co/sQm408IiAr – It's true!
— Citizenship Lawyer (@ExpatriationLaw) July 24, 2017
C. Label ?: And what if you don’t know that you might be considered by the USA to be American? What then?
And what if you didn't even now that you might be considered to be a "U.S. Person" AKA American! Should you check? https://t.co/smEH5PAZI4
— Citizenship Lawyer (@ExpatriationLaw) July 25, 2017
Toronto, Canada
Hello
There is no rule in the tax code saying an individual must file a 1040 !
Period, end of story.
The IRS IS NOT allowed to tax individuals born in one of the states of the union protected by th US constitiution.
16th amendment (not even ratified by the 50 states) changes nothing.
I fail to see why we do not put this simple fact forward.
It’s all described in this video : https://www.youtube.com/watch?v=X1fqqqxnuWg
Really fed up with USA and it’s private corporate gouvernment governed by the private federal reserve !
I don’t pay taxes to private corporations, sorry IRS.
Meaning that even if I did live in USA I would refuse to pay tax to the gouvernment but accept to pay tax to the State I’d be living in for all the commodities in return.
I didn’t renew my US passport and am never going back to fascist USA again in my life.
I also inform people about US tax policy and why it is so important not to marry american and never go study or work and live in USA.
FATC and CBT have made me VERY un-american and I’m letting every one I know and meeet know about it.
American homelanders are so patriotically blindfolded they don’t even see that they can’t go live freely in another country like the citiezens of all other countries in the world.
What a joke USA has become, imposing worl wide taxation after declaring war against the british emire for imposing tax on them.
To bad Jerry Lewis isn’t around to make a sketch of it.
And yes I agree that “Citizenship Based Taxation” has a patriotic sound to it making it even harder for homelanders to see the illness of it.
How about “US Worlwide Resident Taxation” something like that should surely ring a bell !
Best to all
Steven
Thank you, John, for spending your time fighting so thoroughly on behalf of us all. This is a “one-stop shop” of resources for us AND for Congress if anybody in that body actually reads it and considers it thoughtfully.
I particularly appreciated your mention of “indifference” being one of the worst forms of abuse. I think we are all feeling this particular pain at the moment as we sense the clock ticking away our best chance ever for actually getting our needed tax reform accomplished.
Let’s hope that your voice of reason, as well as the voices of all us folk, will finally and at last be heard.
Just came in from Vancouver last night…had a few interesting conversations! A lady from Minnesota began talking to us on Skytrain on the way to airport. She was explaining to us where she lived in the US. I said I knew where she was lived, that I had been born in the US, but lived in and around Thunder Bay, Ontario when I was small. She said to me “you are dual.” “Nope! I am a Canadian! I renounced.” She then proceed to tell us everybody was renouncing because of Trump and she didn’t blame me. I told her that people were renouncing because of Obama. That the numbers had nothing to do with Trump. At that point, a guy listening to the conversation jumped in, very knowledgeable, and began talking about green cards. He basically said “You can’t ever leave. You belong to them.” I believe he had a green card issue. BUT, you should have seen how many people on Skytrain were trying to listen to our conversation.
how powerful choice of the right words can be…..unless nobody is listening.
May I recommend that you delete posts like Steven TRACY’s (first one, above). This is dangerous misinformation which no US judge will tolerate as a line of argument, and distracts from the very real, practical issues that most of us are dealing with.
“There is no rule in the tax code saying an individual must file a 1040 !”
Yes there is. The statute says “return” instead of “1040 or 1040NR” but regulations (authorized by statute) are more specific.
“The IRS IS NOT allowed to tax”
It doesn’t. The US does. The IRS sometimes enforces laws, sometimes violates laws, sometimes covers up embezzlement, etc., but it’s not the one doing the taxing.
“16th amendment (not even ratified by the 50 states)”
Didn’t have to be. 36 states were enough.
The reason this site is here is that other national governments in the rest of the world are participating in enforcing the US’s law when they shouldn’t be. They do their own taxing and that’s what they should be doing.
@Zla’od
You are always welcome to recommend anything you like however, we do not, as a general rule, delete comments. Site Rules: For information on site rules, please see the paragraphs numbered 1) Use only one alias and 2) No personal attacks, in this post, Our Isaac Brock Society – Taking Stock of Where We’re At.
If we had not questioned, discussed etc ideas such as “You have to become tax compliant before you renounce,” we would never have learned that such an idea is not true. That idea could equally be described as “dangerous information” (You can bet we have heard both the idea and that description – from the tax compliance community). There are many such examples over the years since we’ve started. I have watched Mr. Russo’s video before and find certain aspects of it most interesting. He is not a crackpot nor are some of the people in the video. If you find the comment/video distracting, it is always your choice not to read it/watch it.
As to whether or not something is of value based upon what a U.S. judge will tolerate as a line or argument, the ruling of Judge Thomas Rose, in the Bopp lawsuit included the following regarding the relevance of claims of harm where banks were concerned:
He literally threw out the idea that FATCA was responsible for closing of bank accounts, cancellation of mortgages and so on. The United States was NOT responsible for this harm, the banks were. This defies any sense of reasonable logic.
The U.S., or any representative of the U.S. that places U.S. law as the determinant of what is acceptable here, is unlikely to be a measuring stick for what is acceptable for posting on Brock.
http://www.jsiegel.net/taxes/IncomeTax.htm
and for good measure…
http://news.sky.com/story/wesley-snipes-freed-from-jail-after-tax-evasion-10449511
one danger of giving data to a foreign state is that some agencies
are either incompetent, negligent or both
The link below should link to an article in Arutz Sheva
Sweden accidentally leaks nearly all citizens’ personal details
http://www.israelnationalnews.com/News/News.aspx/233057
Folks may find this interesting as it relates to extra-territorial law making. Implications for #FATCA #CBT and a multitude of other such?
@ANN #1 Excellent … the more people become aware of this situation the closer we will be to getting it rectified.
@Zla’od
Thank you for posting the link to that site-will try to make time to read. I am not a proponent for the idea that the income tax lacks a legal basis, just so you are aware…
Would you then tell a person who was born in the U.S. who immediately returned to the country of his/her parents and who never had any other tie with the U.S., that he/she must file income tax because the law states such? Just curious……..
No, that’s a fundamentally different situation. US persons in the USA “must file” because (surprise!) the US government is willing and able to enforce the laws to that effect on its own territory. But how much power do they have over YOU? As a practical matter, possibly very little (but do keep an eye on your own government and banks).
The tax-protester argument is based on what they think ought to be true (i.e. income tax is illegitimate for some reason), not on what is true as a practical matter (US courts are united in considering such arguments frivolous).
This reminds me of an argument some activists made about ten years ago, to the effect that legally speaking, Taiwan is a US territory (due to certain details of the Law of War, which governed disposition of the island after WW2). I have to admit that they made some good arguments, and yet, here we are living in reality. They took their case to a US court, arguing that Taiwan people should be entitled to US passports. You will probably have guessed the court’s response.
I think Okinawans must be entitled to US passports with endorsements labelling them non-citizen nationals, the same as American Samoans. As far as I can tell, US Supreme Court in Afroyim v. Rusk reinstated US nationality of all persons who had been deprived of US nationality without their consent, not just citizens.
One particular person was born in Osaka but his parents were Okinawans, and Japan doesn’t grant citizenship by jus solis so he was only Okinawan. When he visited Japan again while Okinawa was still US territory, he had to get a special permit. After Okinawa became Japanese again, he became governor of Okinawa, and he didn’t need a special permit to visit the rest of Japan again But I bet he didn’t renounce US nationality.
Following.
@Zla’od
Hmmmmmm it sounds like the issue is punishment or not rather than what is the law.
How can one say advising a deemed US citizen living outside the U.S. to not become compliant is not based upon what one thinks ought to be true? After all, as clearly as the IRC says the income tax is legitimate, it says all U.S. citizens are required to file taxes as well as information reporting forms, wherever they are in the world.
I am aware of the courts’ view on the frivolous arguments…..I am not really aware of any cases where a deemed non-resident US citizen has made a claim for not being responsible for tax/reporting forms perhaps due to the non-enforcement/lack of due diligence on the part of the U.S. Such cases may well eventually pop up. I can certainly imagine a judge ruling such a claim is also frivolous
So where is the difference?
I have never heard that Taiwan could be a U.S. territory- how does that work?
The trick is to avoid appearing in a US court, which will pay no attention to what “ought” to be true, and impose some legal decision of its own devising. Political power comes out of the barrel of a gun, not from abstract notions of “legitimacy” or “morality.”
The argument went like this: In 1945, the US military instructed the Japanese authorities in Taiwan to surrender to Chiang Kai-shek, who had to be flown to the island for the occasion. According to the Law of War, this made the USA the “Principal Occupying Power.” Even though Chiang assumed control of the island, he did so (legally speaking) on behalf of the USA. Sovereignty over Taiwan would remain with Japan until the Treaty of San Francisco (1952), when Japan formally gave it up (but without specifying which country would assume it–a deliberate omission, in view of the two Chinas). According to the theory, Taiwan then became a US territory, and will remain one until the US organizes a referendum to determine the island’s political future. The fact that Taiwan has had its own government all these years, and that the US has remained seemingly oblivious to its supposed possession of Taiwan, is awkward but apparently irrelevant.
See here: http://www.taiwanbasic.com/key/dc/tw_insul6.htm
And here is a news item about the resulting US court case: http://www.taipeitimes.com/News/front/archives/2009/04/10/2003440698
Buying property and renting it out in Belgium is incompatible with the US tax system.
When you buy property, you pay about 10-15% tax on the value of the property.
When you are a private individual renting to private individuals, you generally (if you have a mortgage) do not have to declare that rental income and it is generally not taxed. But you cannot deduct renovation expenses and you cannot deduct mortgage interest from your earned income.
When you hold a property for about 5 years you do not pay capital gains. However, from what is noted above (10-15% buying tax) you lose money if the value did not increase enough to make up the initial buying tax.
Belgium also has no capital gains tax on the sale of stock.
Thus a small property investor compliant with the IRS would have to declare capital gains, untaxed locally, much like the case of Boris Johnson, while not being able to deduct mortgage interest from earned income and paying a huge buyer’s tax.
What does usually save the day in Belgium is huge tax rates on income (about 53% above 50k a year). This nicely becomes a foreign tax credit for the US, and probably is enough to offset any US tax. I’m no expert, but apparently FTC can offset many kinds of income, not just earned.
Belgium allows multiple citizenships..
The most prevalent issues in the UK are not dissimilar to the issues facing Canada.
1. Retirement saving – as I understand it, a company sponsored pension plan is exempt from US taxation even if the assets held inside the pension wrapper are PFICs. I believe this is true for about 5 countries in the world. Everywhere else, you are better off not having pension assets at all because double taxation of pension assets is incredibly destructive. The ISA (individual savings account) is not exempt from US taxation (because money can be freely withdrawn from an ISA). Other UK government sponsored plans it’s less clear. Not sure what the status is of a SIPP (self-invested personal pension useful for self-employed) but could be a foreign trust. Not sure what the status is for things like stakeholder pensions (government mandated for SME employees).
2. Investments – obviously a huge issue as it is everywhere outside the US. There are a handful of US listed investment ETFs that are not PFICs and are also HMRC reporting funds (important to secure capital gains and dividend treatment in UK). Forget tax advantaged schemes like VCT (venture capital trusts) or EIS (enterprise investment schemes). Also, UK has £11k ish exemption per annum on capital gains, £5,000 per annum exemption on dividend income and £1,000 per annum exemption on interest income all of which attract US taxation.
3. Housing – UK does not tax capital gains on main residence while US does (subject to the exemption). Gain/loss on mortgage repayment.
4. Proceeds from betting – UK does not tax betting winnings but, I believe, the US does. A very popular investment scheme in the UK is spread betting on shares. This is exempt from UK taxation but, I imagine, would attract US taxation. It is used by wealthy UK investors to 1) invest with leverage 2) avoid paying capital gains tax on gains and 3) avoid paying income tax on dividends.
5. Individual allowance – The UK’s individual allowance is £11.5k which is far more generous than the US.
If you add up the individual allowance, the capital gains allowance, the dividend income exemption and the interest income exemption, you could theoretically have a person earning about £29k who paid exclusively US tax and 0 UK tax. And that’s before looking at all the stuff the UK didn’t tax but the US would (ISA, PFIC, housing capital gain etc.).
Regarding the following:
For example in Canada, the primary problems are the government-registered savings plans (primarily deemed as foreign trusts) which suffer from mis-matched timing and loss of full tax-deferral; the inability to invest in Canadian Mutual Funds due to PFICs; capital gains tax triggered by the sale of principal residence; pensions being treated as foreign trusts, etc.
My usual point of clarification – these are only problems for dual citizens in Canada who wish to be compliant with US taxes. If you don’t care and stay off the IRS radar, you can invest in mutual funds until the cows come home, sell your house for a vast profit, or collect any pension you want. If the US doesn’t know about it, and can’t penalize you anyway, then it’s absolutely not an issue.
rules to live by for an undocumented relinquisher
1. if a brown envelope from a 3 letter agency arrives at your door step open said envelope and place contents on bottom of bird cage.
2. if another letter from the same agency arrives see step one
3. never cross the border into amerika again.
Nononymous gets it. Of course you would still have to worry about your own government and banks.
Yup. When the CRA starts collecting on behalf of the IRS, or local banks start asking about my birthplace and threatening to close my account, then I’ll have a problem. But until that happens, I’ll continue to ignore the US, and the US will continue to ignore me.