Citizenship renunciation fee soars as American expats flee FATCA

Monday, 01 September 2014
US government fees charged to Americans for renouncing their citizenship will rocket from USD450 to USD2,350 on 12 September.

The fivefold increase is probably related to the recent dramatic rise in renunciations triggered by the US Foreign Account Tax Compliance Act. FATCA forces foreign banks and other institutions to report their US clients’ financial doings to the Internal Revenue Service as from April 2015, after which it will become much more difficult for US expatriates to remain below the US tax radar. Thus some tax advisors have been suggesting that some of the USA’s 7.6 million expats may find renunciation a lower-cost and more final option than trying to come into compliance with US tax laws via one of the voluntary disclosure programmes.

Last year 3,000 US persons applied to renounce, more than treble the previous year’s figure, and ten times that of 2008. The 2014 numbers are expected to break that record. About three-quarters of applicants are in Switzerland (where rock star Tina Turner was perhaps the most famous of recent years), the UK, and Canada. The backlog of applications at the US consulate in Toronto is said to run into the third week of January 2015.

The US State Department justifies the increase by claiming that documenting a renunciation is very costly, since it requires at least two personal interviews between the applicant and the local American consul. It acknowledges, though, that the rapid rise in demand is one of the reasons for the increase, since these interviews are now ‘consuming far more consular time and resources’. Waiting times for expatriation interviews have soared from a few weeks to six months in some jurisdictions.

However, renunciation is not necessarily an easy panacea for US expatriates. They may not be granted the privilege unless they can prove tax compliance, and in any case, the IRS will impose an exit tax in the form of a capital gains charge on assets declared. It is also legally impossible to renounce citizenship while retaining the right of residence in the USA.


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