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I've heard it said that a US citizen can escape paying US income taxes by giving up their citizenship and living in a foreign country (presumably, somewhere that has lower taxes or perhaps where a deal has been made).

Is this true? If it is true, one would expect a few rich people would emigrate... then of course there is Atlas Shrugged, which is fiction -- but perpetuates this idea.

Has anyone noteworthy (e.g. a multi-millionaire, or an actor or other celebrity) publicized giving up their US citizenship to escape taxation ?

Oddthinking
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Paul
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    Do you really need to give up your citizenship for that? I'm a Swedish citizen, and you don't pay taxes in Sweden if you live and work abroad. Anything else would be pretty much insane... For most countries in the world, moving abroad is enough, is the US really be different? – Lennart Regebro Apr 15 '11 at 08:05
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    Lennart, the USA has taxation of worldwide income of its citizens. There is an $80,000 income exclusion if you live and work overseas. This exclusion only covers earned income (labor). So if you are rich and have income from investments, there is effectively no exclusion. There is a tax credit for foreign taxes owed, but all that means is you wind up paying the same in total -- or more. – Paul Apr 15 '11 at 08:07
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    @Paul: The more I learn about the US, the more crazy it seems. :-) – Lennart Regebro Apr 15 '11 at 08:27
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    I think Australia and New Zealand have worldwide taxation as well, not entirely sure... Europeans I've spoken with do tell me thats nuts. Individual US States like New York or California also tax... but only if you reside there or work there. – Paul Apr 15 '11 at 08:30
  • I've heard of a few people living in The Philippines who have done that, but not anyone I could consider 'noteworthy'. – Tim Post Apr 15 '11 at 08:37
  • I can't provide any sources, may be it is just rumors. Friend of mine lives at Cayman Islands (zero tax land) and he told me that there are several rich men living there who gave up US citizenship to avoid taxes. – Andrey Apr 15 '11 at 15:58
  • If I were rich enough to have to live overseas and still have to pay taxes to the U.S., I'd just be content with being rich enough. – Kyralessa Apr 16 '11 at 18:58
  • Being subject to tax and actually paying tax is a difference. I doubt that an IRS agent can do much in a foreign country except kindly ask you to pay. – Ingo Apr 17 '11 at 10:44
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    @Ingo No, but the IRS can seize property or investments which you own in the US in lieu of payment. You can also be arrested and extradited to the US (if you're living in a country with an extradition treaty with the US). – Darwy Apr 20 '11 at 08:39
  • It's a complicated area: [even the summary](http://en.m.wikipedia.org/wiki/International_taxation) is complicated. Having worked in both Sweden and Australia, I can say mixing between the systems is even more complicated... and don't forget to add the taxation treaties between the two countries (i.e. to avoid double taxation). – Oddthinking Oct 16 '11 at 23:58
  • I don't see how this is on-topic because I don't see a claim here - trivially, people who are not US citizens and do no business in the US do not have to pay US taxes; but renouncing citizenship is not something you do just by moving to another country, and the government can refuse to accept your attempted renunciation (and probably will if you're doing it for tax reasons). Please document the exact claim being made here. –  Oct 17 '11 at 19:13
  • I wonder why nobody mention Eduardo Saverin http://www.forbes.com/sites/merrillmatthews/2012/05/23/in-praise-of-eduardo-saverins-tax-avoidance/2/ Yes he said he doesn't do it for tax. Look at other answers why. –  Sep 12 '12 at 08:44
  • It's not really an answer for this question, given the rest of his circumstances, but you could argue that [Meyer Lansky](http://en.wikipedia.org/wiki/Meyer_Lansky) tried to do this - he was however, extradited and tried for tax evasion. (If they could've pinned more of his numerous crimes on him, they surely would have) – LessPop_MoreFizz Sep 13 '12 at 04:31

4 Answers4

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Many countries have "tax treaties", which generally mean that

  1. Expatriates can avoid double taxation
  2. Expatriates can't avoid taxation

The IRS site provides a list of tax treaties that the US is a member to.

Note, however, that renouncing citizenship may not actually mean you can avoid taxation if you are deemed to be renouncing your citizenship to avoid taxation. Quoting from an Australian Treasury document [PDF] explaining the Australia-US tax treaty, as an example:

Article 1 of the Protocol modifies paragraph (3) of Article 1 of the Convention which permits the United States to continue to tax as U.S. citizens former citizens whose loss of citizenship had as one of its principal motives the avoidance of tax. To make the Convention consistent with U.S. law, the Protocol extends this treatment to former long term residents whose loss of such status had as one of its principal purposes the avoidance of tax.

So if you're planning on renouncing your citizenship to avoid taxation, it probably isn't a great idea to tell people about it ;)

Jivlain
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    I might be missing something here, but this seems to answer completely different question. – vartec Sep 12 '12 at 10:25
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    Well, yes, and no. I read in an implied "No, there aren't any such people, because it is impossible to successfully escape taxation in this manner. People who try will find the authorities in their new home cooperating with the USA authorities" – Paul Sep 12 '12 at 11:38
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EDIT: This post turns out to be more about celebrities who renounced their citizenship for reasons other than taxation.

According to N.Y. Times, renouncing U.S. citizenship is becoming more and more common among expatriates. This blog post lists the following four people who renounced their citizenship:

  1. Terry Gilliam (questionable, since he lives in UK where taxation is higher)
  2. W.E.B. Du Bois (renounced when he couldn't get a passport because of communist connections)
  3. Ted Arison
  4. Bobby Fischer (renounced when his passport was invalidated because of connections to Yugoslavia)

EDIT: I was assuming that taxation is the most probable reason for giving up citizenship, but the people I list seem to have other reasons (added to the list). Credits to Scott Hamilton.

Also mentioned are

  • President John Tyler, who accepted "a post as representative of the Confederacy, basically renounced his U.S. citizenship"
  • Elizabeth Taylor, whose renouncement wasn't accepted
StackExchange saddens dancek
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  • But did any of those people do so to avoid taxation? Gilliam, of course, lives in England, where the taxes are much higher. Bobby Fischer's break with the US was over his violations of economic sanction on Yugoslavia, so I don't think that can be called a tax issue either. – Scott Hamilton Apr 15 '11 at 13:55
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    @Scott Hamilton: I thought the US expatriates had to pay taxes *both* to the US and the country of residence. Whenever that's true, taxation will be a possible motive for renouncing citizenship. Given Occam's razor, I'll believe that most renouncers do it to avoid taxation, until someone shows me what the more plausible motive would be (which you just did for Fischer). – StackExchange saddens dancek Apr 15 '11 at 14:07
  • Double taxation may be a motive, but that still isn't saying anything about the taxes in the US being too high if the person opts for citizenship in a country with *higher* taxes. Secondly, I don't see on what grounds you assume citizenship renunciations have to be about taxes. I just looked up Du Bois, and he was refused a passport because of his involvement with the Communist party so he emigrated to Ghana, no taxes involved. Arison I'll grant you was trying to avoid taxes, even though he failed. Tyler obviously had nothing to do with taxes. – Scott Hamilton Apr 15 '11 at 14:17
  • @Scott Hamilton: You're quite right. I edited the post with this information. It would be better with sources, but since it's off-topic to the question, I'll just leave it that way. I wonder if I should delete the answer or just leave it be. – StackExchange saddens dancek Apr 16 '11 at 07:04
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    "Terry Gilliam (questionable, since he lives in UK where taxation is higher)" It's most likely that Terry Gilliam's motivation was primarily the US estate tax. Property passed to from a US citizen to a non-US citizen spouse doesn't quality for the unlimited marital exemption for the US estate tax. So should he die before his wife his estate would have had to pay a whopping US estate tax -- the sort of amount that forces a widow to sell her house to pay it -- but no UK inheritance tax. By renouncing he neutralized a major threat to his non-US dependants' well-being, for minimal to no cost. And –  Oct 16 '11 at 23:42
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Celebrities and billionares:

That is the lesson from the disclosure that Eduardo Saverin, the 30-year-old billionaire who helped found Facebook, has renounced his U.S. citizenship to become a resident of Singapore.

Singapore offers huge tax advantages for people like Mr. Saverin, whose wealth is primarily in the form of capital gains. The Southeast Asian city-state has no capital-gains tax and its top income-tax rate is 20%—compared with rates of 15% and 35%, respectively, in the U.S.

[...]

Jet Li became a citizen of Singapore in 2011, and while the kung fu superstar did not say whether he had renounced either his Chinese or American citizenship, Singapore law forbids dual citizenship.

[...]

The act of expatriating isn't new, whether for tax or other reasons. Global investing titan John Templeton famously gave up his U.S. citizenship in the 1960s to become a citizen of the Bahamas, although his family says it wasn't for tax reasons. Biographers of deceased director John Huston and the late actor Yul Brynner report that each gave up his American citizenship in the 1960s.

source: WSJ

See also long list on Wiki: List of former United States citizens who relinquished their nationality

As for numbers:

Rich Americans renouncing U.S. citizenship rose sevenfold since UBS AG (UBSN) whistle-blower Bradley Birkenfeld triggered a crackdown on tax evasion four years ago.

About 1,780 expatriates gave up their nationality at U.S. embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.

source: Bloomberg

vartec
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  • I found this referenced, I think, on the Wiki, and it provides a number of regulatory details http://www.forbes.com/forbes/2005/0328/092_print.html – Paul Sep 12 '12 at 11:29
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I wonder why nobody mention Eduardo Saverin

http://www.forbes.com/sites/merrillmatthews/2012/05/23/in-praise-of-eduardo-saverins-tax-avoidance/2/

Yes he said he doesn't do it for tax. Look at other answers why. In short, tax laws are so vague that it judge people based on the "intent" of the person. Hence, openly admitting that he lets go his citizenship to avoid tax is politically costly.

Not only the productive are forced to part with huge money they worked hard for, they have to lie their way just keep what's theirs.

Here is some snippets.

So when Facebook co-founder Eduardo Saverin decided to give up his U.S. citizenship, and by so doing avoided paying millions of dollars in U.S. taxes, New York Senator Chuck Schumer attacked him for “selling out the country. ” I can’t recall Schumer being equally critical, or critical at all for that matter, of his above-mentioned congressional colleagues.

In his own defense, Saverin denies that he left the U.S. to avoid paying taxes and stresses that he paid all applicable taxes at the time, including an “exit tax.” He points out that he moved to low-tax Singapore in 2009 and filed to give up his U.S. citizenship in January of 2011, which became official last September. But even if he didn’t intend to avoid the bigger tax bill that would come after the Facebook IPO, he did, and that’s what has Schumer and Pennsylvania Senator Bob Casey — and maybe even House Speaker John Boehner — so upset. Who’s gonna pay for all those stimulus bills and spending sprees?