The last thing any proud American would do is giving up their citizenship! Though this can sound normal but nowadays it isn’t. Records from the US Treasury recently showed that almost 4,300 American expatriates gave up their citizenship which was a 20 percent increase from the previous year’s record-breaking numbers.
There are many reasons why someone would give up the pride of being an American but recently one of them sparked up mass renunciations of American passports and taking up citizenship of their countries of residence.
The biggest reason is all about the so-called American double-taxing system. This all came up in 2012 when the US Congress passed a law to specifically target overseas offshore accounts owned by rich Americans. This also meant that no matter who you are or where you live across the globe, you must file tax returns to the US Treasury.
The law is called the Foreign Account Tax Compliance Act (FATCA) and the Treasury is accused of unfairly taxing American expats twice, hence the double-taxation claims. This is because, on top of the FATCA compliance, they are also required to pay their taxes in their countries of residence. Eritrea and the US are the only countries in the world with a citizenship taxation system. Like the US, Eritrea has also seen a mass exodus of most of its citizens to neighboring countries like Ethiopia, Sudan, Kenya and Uganda to escape the economic and political crises.
Since 2010 when around 1,000 Americans gave up their citizenship, the number of those seeking to give up their citizenships has been increasing each passing year.
Despite getting an annual allowance of $106,000 before taxes, many expat Americans feel that they are being unfairly taxed. They accuse the Treasury of ignoring the fact that costs of living in their countries of residence are high and that not all of them are wealthy. In the FATCA system, both the savings and pension can also be taxed which is causing discontent from ordinary Americans living abroad.
Much of the pressure has been put on foreign banks which have to identify American clients and disclose their account details to the US Treasury for them to be taxed. Failure to comply could risk the banks to face heavy penalties that can be as high as 30% in that particular bank’s financial dealings with the United States.
This situation has made foreign banks to deny expat Americans the opportunity to access banking services for fear that they will find themselves in a risky dilemma of facing heavy fines from US authorities. This has forced ordinary Americans living abroad to renounce their citizenship saying that the US taxation system that makes their lives impossible.
The banks have also been accused of closing down accounts of any suspected ‘accidental American’, that is if you belong to another nationality but born in the US or being born outside the US to American parents. Americans born in the US but spent most of their lives outside the US also fall under the FATCA’s wrath.
But potential citizenship renouncers are also facing a huge financial uphill as they have to fork out as much as $2,350 for the costs of renouncing US citizenship. This has partly been due to the increased number of citizenship renunciation applications.
Many are trying to come to terms with deep emotional pains as a result of forfeiting their mother country’s identity. This also includes the fact that renunciation has be done in person and at the US embassy in the presence of American representatives.
The fact that many American expatriates abroad have no representative in the US Congress – which passed the FATCA law, has led many of them to grudge that their government has ignored them but one congress member signaled that there is a possibility that the issue might be looked into for their voices to be heard.