US Tax policy on citizens abroad

Discussion in 'Off Topic Area' started by Zinowor, Mar 28, 2014.

  1. Zinowor

    Zinowor Moved on

    http://www.businessinsider.com/how-...icans-abroad-to-reconsider-citizenship-2011-9

    A friend of mine brought this to my attention and suffice to say, I became a bit worried.

    I was born in LA and moved to the Netherlands at the age of 4. I still have my American passport, even though it expired a few years ago. I have a Dutch passport as well, so I'm not even sure if I'm still a US citizen, but according to the article you don't even have to be in order for the IRS to drive a shaft up your behind.

    I was wondering if this policy was still in effect and if someone couldn't tell me a bit more about it. I'm genuinely concerned about this, so I appreciate any input you could give me.
     
  2. Ero-Sennin

    Ero-Sennin Well-Known Member Supporter

    I think that if you become a citizen of another country, your citizenship to the United States is automatically revoked. There may be certain countries that the U.S. allows you to have duel citizenship with, but it doesn't apply across the board. I doubt you can be a duel citizen of the U.S. and Russia, or the U.S. and China, for example.

    If this is the case for you, I'm sure your country would have your back against the U.S. IRS.
     
  3. Zinowor

    Zinowor Moved on

    When I was 13, I renewed and used my American passport to enter the country. I've had my Dutch passport since I was 5 or 6. I doubt they missed that, because I had to go the American consulate in 'Den Haag' to renew the passport.

    There is a good chance the US wouldn't allow that anymore, but the Netherlands has a good relationship with the US so it's 50-50.
     
  4. Ero-Sennin

    Ero-Sennin Well-Known Member Supporter

    You should contact the U.S. Embassy and the Dutch government for advice on how to understand/proceed with your situation. Duel citizenship is a tricky thing, and it's even more tricky since you were a child when this all happened and different rules tend to apply to children. Things may have changed just because you're an adult now.
     
  5. Christianson

    Christianson Valued Member

    In short: you are unlikely to be in trouble.

    Slightly longer: … but you should speak to a tax professional just in case.

    In depth: The article's premise (that US citizens owe tax on all income, even if not resident and earned abroad) is true only in the absence of a tax treaty. The Netherlands and the US have such a tax treaty, which specifically sets out to eliminate double taxation. So as a good rule of thumb, if you've already paid tax on income in the Netherlands, then you are safe from the IRS. Depending on your particular revenue streams, there may be particular corner cases that apply. If you want to be sure, you should probably consult with a tax professional. However, my instinct would be to say that if you aren't already dealing with someone (who should have raised this issues already), then it's unlikely your income is complicated enough to require special handling.

    Final point: I am not myself a tax professional.
     
  6. aikiMac

    aikiMac aikido + boxing = very good Moderator Supporter

    There is, sadly, more than one issue for a US citizen abroad: 1) requirement to file a tax return; 2) requirement to pay income tax; 3) requirement to disclose foreign bank accounts.

    The USA has tax treaties with many countries, and under those treaties the amount of tax owed to the US Govt is reduced, but a treaty would not eliminate the requirement to file a tax return and disclose foreign bank accounts.

    To sort out your particulars, you would need to consult with a tax lawyer or CPA who works in this area.
     
  7. Aegis

    Aegis River Guardian Admin Supporter

    It's worth noting that the IRS ignores many tax efficient structures that might save income tax or capital gains tax and those would then become taxable in a US citizen's hands. In addition, many common investments both inside and outside pensions can end up being treated as Passive Foreign Investment Companies and suffer punitive tax rates. It's definitely worth checking with a tax professional specialising in dual-jurisdictional affairs, otherwise this could potentially turn into a much bigger problem later down the line.
     
  8. stephenk

    stephenk Valued Member

    This is not true. In fact, even *intentionally* giving up US citizenship is a very difficult process. Also, although I'm not an immigration lawyer, I'm certain that the US considers you (the OP) a citizen, having or not having a valid passport has nothing to do with continued citizenship. The fact that you did have one at one time is pretty irrefutable evidence that you are a US citizen.

    Equally, stripping people of citizenship is a very internationally frowned-upon thing. It essentially never happens, except in a case where someone has committed fraud on their citizenship application. Maybe you recall the debate in the US about a drone strike that killed a member of the Taliban who also happened to be a US citizen, actively fighting against US forces. The debate wasn't about stripping him of his citizenship, it was about the legality of extra-judicial killing of a US citizen.

    I hold dual US/UK citizenship (US by birth, naturalized in the UK) and it's no problem at all.

    With regards to the tax issues, it is true that you are required to file - it's also likely that you won't be in too much trouble as I think this sort of thing happens a lot. It's a different situation if you go work abroad, make a ton of money and don't file. If you even intend on living or working in the US it's probably a good idea to bite the bullet, hire a tax accountant who specializes in both Dutch and US taxes (this will be easy to find, but it's not going to be cheap), and sort it all out. Essentially, this will probably only become a problem for you if you want to exercise any of your rights as a US citizen (e.g. live/work in the US, apply for financial aid for college*, etc...).

    The tax treaties tend to work in this way (a bit simplified, but essentially true): You are responsible for paying US taxes on worldwide income, however, you'll be able to 'write-off' your foreign taxes. Since EU taxes tend to be higher than US taxes this means that you end up not owing anything to the US. If, however, you were to work in Singapore, for example, you would have to 'top-up' the remainder to the US.

    Likely it's going to end up costing you a little money every year to file the taxes if you want to be 100% cool, but I don't think the IRS is going to send the black helicopters for someone who's an average Joe who happened to be born in the US.

    As another note, you should be aware that the US 'requires' you to enter the US with your US passport if you are a citizen. Again, it's unlikely that you would ever suffer any consequences unless you're smuggling in drugs or something. Although if you are ever in trouble in the US, you do not have the right to receive help from the Dutch embassy because you are also a US citizen.

    The point made above about the foreign bank accounts is accurate as well. This can cause problems sometimes with foreign investment vehicles being unwilling to deal with US citizens on occasion. To be perfectly honest, unless you're wealthy or become wealthy you'll likely suffer zero consequences. The issue comes in if you become wealthy - but, then it's too late to give it up for various reasons. If you think that there's a chance you may get involved with a businesses that could earn significant money and you have no desire to live or work in the US, you may want to get advice and think about renouncing it. I have no idea what that would entail or if there would be any lasting consequences.

    Standard 'I am not a Lawyer nor an accountant, please consult professionals' tag line applies...

    *another note: Upon turing 18 (assuming you're a male) you are also required to register for the draft (i.e. 'Selective Service'). If you have not registered this can cause issues mostly with regards to things like US government subsidized financial aid for university (but, I can't think of any other consequences that would, in reality, be likely to cause problems).

    TL;DR: You are certainly considered a US citizen by the US Gov't. US citizenship is *not necessarily* a great thing to have. It's not hassle-free like UK citizenship, it comes with a lot of crap that *tends* not to be a big deal, but can be an issue in certain cases. If you plan on ever exercising your rights as a US citizen, you should sort this out. Likely it'll cost some money for the professionals, but you won't be in any actual trouble.
     
    Last edited: Mar 29, 2014
  9. Ero-Sennin

    Ero-Sennin Well-Known Member Supporter

    At the majority of your post: I've been led to believe that duel citizenship is a difficult thing to attain, and that by becoming a citizen of another country can revoke your U.S. citizenship. I admit I'm not well versed in the area though, you sound more informative than I.

    I had the Selective Service people bother me a while ago. I did it when I was 18, didn't know what they were trying to go on about. The time they were trying to get in touch with me was when I was in the military of all things.
     
  10. stephenk

    stephenk Valued Member

    Like I said, I've been naturalized in the UK after working here for many years and having to go through all the tax issues. I know a lot about this stuff.

    You may be thinking of the parts of the oaths of many countries naturalization processes in which you say something like 'I hereby renounce all other loyalties etc....' Something like this is present in the US one as well. This *does not* actually mean anything in law.

    The way this all really works is like this: Say you become naturalized in the US and you say the oath that goes like this: "I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty, of whom or which I have heretofore been a subject or citizen..."

    So, now *to the US* you have given up your, say, UK citizenship - but, it's not in the US's power to tell the UK who *they* recognize as a citizen. They will still see you as a UK citizen, they don't give a flying f' what the US thinks and vice versa. This also is related to why you can't get help from the embassy of your other citizenship while in a country you are also a citizen of.

    As an interesting example of how this sort of stuff can play out you can look up the problems (which no longer exist) with Americans of Polish decent going back to visit Poland for the first time and being not allowed back out by basically being considered Polish citizens through their parents/grandparents.

    (Also, what I've said is true for the UK and US and tends to be the case in the vast majority. India and Japan are notable exceptions, they can be tricky.)
     
    Last edited: Mar 29, 2014
  11. Moosey

    Moosey invariably, a moose Supporter

    My wife and her siblings have to file a tax return to the US every year as they all hold US citizenship but, like you, have lived abroad since they were very young. However, they're never actually charged any money and I believe that last time I asked her to explain it, she told me that you're not taxed if you live as a citizen of another country for the majority of the year.

    I found this paragraph on the site I'll link to below

    http://americansabroad.org/issues/taxation/us-taxes-while-living-abroad-faq/

    It sounds like, if you're a Dutch citizen living in the Netherlands, you're probably exempt from any charges, but you still need to file a tax return as a formality.

    Would definitely recommend talking to a tax specialist, but I wouldn't worry about it - judging by my wife, you probably don't owe anything.
     
  12. stephenk

    stephenk Valued Member

    This may be *practically* true, but it's not actually how it works. Although for the vast majority of 'regular people' who are not super-wealthy and living in the EU where taxes tend to be higher it is, in practice, true that you won't owe anything. But, it can be dangerous to assume that this is the way it works.

    The FEIE only applies to some of your earnings (which, again, for average earners is likely to be all of it), it's not the case that all foreign income is excluded if those conditions apply.
     
  13. Zinowor

    Zinowor Moved on

    I've got some amazing answers in this thread and I've taken them all into consideration.

    I'll take the general advice here and talk with an expert.

    Being that I just recently started my own business and already wasn't an average earner (define average though, I'm no millionaire), it may be in my best interests to work up to renouncing my US citizenship. Which kind of pains me, because I always liked the idea of being a US citizen. I've already decided I wasn't going to live in the US anymore and my studying is already done, so I won't be exercising my rights as a US citizen either. I just wanted to keep my US citizenship for sentimental reasons, but it's not worth paying taxes over for the rest of my life. To which I have to say, "really America?"

    Anyway, thanks for the replies.
     

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