The number of Americans who renounced their citizenship in 2020 was the largest in history. In 2021, the trend continues. Many of them are applying for citizenship in the Caribbean instead. Please find out from the text below why the situation has occurred and how the growing number of Americans renouncing their citizenship can harm the Caribbean citizenship-by-investment programs.
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How many Americans renounced their citizenship in 2020?
Different sources quote somewhat different figures but the tendency is clear anyway: the number of Americans renouncing their citizenship is growing at a fast rate. The Americans Overseas association provides the following statistics:
- 6,705 Americans renounced their citizenship in 2020 and this is a record-breaking number.
- It is 260% more than the number of Americans who renounced their citizenship a year before (2,577).
- The number of renouncements increased by nearly three times even notwithstanding the fact that many American embassies and consulates were closed for the best part of the year because of the COVID-19 pandemic.
- The closest number of renouncements occurred in 2016 (5,411 people) but it was not as high as in 2020 anyway.
Another source claims that the number of Americans renouncing their citizenship was 6,707 but this figure is close to the one cited above. In any case, the number is much greater than the average number of Americans renouncing their citizenship over the last 23 years.
Experts agree that this figure would have been much higher if the American embassies and consulates were not closed due to the pandemic. If the trend continues, the statistics for 2021 is going to be terrible.
It is worth noting that most Americans who renounce their citizenship do it not for political reasons but rather for economic ones. The Foreign Account Tax Compliance Act (FATCA) makes non-American banks report to the USA fiscal authorities all the financial operations performed by American citizens who have accounts in those banks. Now European, Asian, and all other banks want to get rid of American customers because their operational costs increase when they service Americans. This, in turn, makes Americans living abroad and using foreign banks renounce their American citizenship to preserve their accounts in offshore and foreign banks.
Why do Americans renounce their citizenship?
According to the IRS data, 734 Americans renounced their citizenship in the second quarter of 2021. This is about 200% more than in the first quarter of the same year.
According to Axios, most Americans renouncing their citizenship are wealthy people who seek to lower their tax burden. The IRS list mostly contains the names of the people whose global net worth exceeds 2 million dollars.
Interestingly, many wealthy Americans renouncing their citizenship come from the hi-tech industry. According to Recode, Eric Schmidt, the former Google CEO, applied for citizenship of Cyprus, for example.
The amendments to the tax code suggested by Joe Biden can contribute to the growth of the number of Americans renouncing their citizenship. The current administration wants to do away with the tax reforms that the previous administration advocated and increase the maximum corporate tax rate from 21% to 28%. Besides, Biden intends to raise the capital gains tax to 43.4% for those Americans who make more than a million dollars per year.
The number of Americans renouncing their citizenship started growing when the FATCA was passed in 2010. The Act had a major impact on Americans living abroad and having foreign bank accounts.
The reporting requirements have a cost associated with them. American citizens and green card holders have to file tax returns every year regardless of their geographical location. They have to file Foreign Bank Account Reports (FBAR) even if they only have the signer’s authority. Many of them find it burdensome to say the least.
The USA is one of two countries in the world that taxes its citizens wherever they make earnings.
A tax specialist who helps Americans living in Poland renounce their citizenship says that it has been more difficult to achieve this goal recently as many American consulates remain closed or semi-functional due to the COVID-19 pandemic. “Some 20,000 or maybe even 30,000 Americans would like to renounce their citizenship but they are unable to make an appointment. The embassies and consulates are working at their peak capacity already”, he told the journalists.
The Department of State tries to discourage Americans from renouncing their citizenship. A representative of the Department has issued a warning that entry to the USA may be forbidden for former citizens of the country if it is determined that their renouncement of American citizenship “has been motivated by the desire to evade taxes”.
Citizens of the USA wishing to renounce their citizenship have to pay a state duty of US$ 2,350 and turn up for a personal interview at the embassy or consulate in the country of their residence. Besides, they have to file a tax return and pay an ‘exit’ tax. In spite of all these costs, more and more Americans are renouncing their citizenship.
The desire of the US authorities to catch those Americans who live abroad and evade taxes is understandable. However, the anti-tax evasion regulations make the lives of many innocent Americans living abroad too hard. The EU authorities are trying to push the US to lessen the grip but their efforts have been fruitless thus far.
When Americans started to renounce their citizenship in large numbers
A number of liberally minded Americans started thinking about leaving the country when Donald Trump took office in 2016 but the number of citizenship renouncements is not directly related to the election results. The tendency started in 2013, under the Obama administration. That year, 3,000 Americans suddenly renounced their citizenship, which was three times as much as on average.
The coronavirus pandemic is also NOT the reason why many people are running away from the USA. Those Americans who are renouncing their citizenship normally already live in a foreign country. When they manage to acquire a second passport, they get rid of their American passports saying that the American efforts against money laundering and terrorism financing are making the American passport too expensive to keep.
The anti-money laundering regulations adopted in 1970 together with their extension passed in 2010 put a heavy burden on Americans who live abroad while not making very much money. Most Americans do not evade taxes. What is more, most of the nine million Americans (approximately) living in foreign countries do not make enough to pay taxes to Uncle Sam. Only those Americans who live abroad and earn more than US$ 107,600 are subject to taxation.
According to an expatriates’ organization called InterNations, the educational sector is the main employer for Americans living abroad. Around 29% of them work in this sector. Now, the average teacher makes US$ 60,000 in the USA and less in most other countries.
But even if an American citizen makes below the taxable amount per year, if he or she has no property in the United States nor earns any income from it, he or she has to file the annual tax return to the IRS anyway. The Congress has toughened the anti-money laundering regulations and the Americans living abroad now have to hire expensive international accountants to handle their report papers.
The possible fines for those who do not declare their international earnings and assets are severe: up to 50% of the undeclared amount can be confiscated.
It is not so easy to renounce American citizenship: one has to attend a personal interview with a government official, pay a state duty of US$ 2,350 (which is quite a payment in comparison to other countries) and re-file the tax returns for the last five years. The process takes about 12 months and a year after the American citizenship is renounced the former citizen of the USA is required to file one more tax return to the IRS. Only after that all the links with the USA administration will be broken. This shows that Americans renouncing their citizenship have to make a very serious decision and go through serious hassle.
Americans ‘purchase’ citizenship in the Caribbean when renouncing citizenship of their home country
Wealthy Europeans and Americans now go to the Caribbean islands not only to spend the winter months under the bright sun. More and more people from all over the world stay on the islands over extended periods these days. Immigration specialists, government officials, and the developers in the Caribbean basin witness a vast increase in the number of foreigners arriving to the region. They say that the inflow of Americans to their countries has recently been especially impressive. Well, we have discussed the reasons for that above.
What is interesting, many visitors to the Caribbean islands are not satisfied with renting a hotel room any longer. They want full citizenship of a Caribbean country. Five countries in the region administer citizenship-by-investment programs: Saint Kitts and Nevis, Grenada, Antigua and Barbuda, Dominica, and Saint Lucia. Saint Kitts and Nevis was the first country to launch such a program back in 1984. Initially, the Caribbean citizenship-by-investment programs attracted mostly people from China and the Middle East who sought more powerful travel documents than the passports of their home countries. However, over the last few months, the number of applications for Caribbean citizenship from Americans has increased significantly. You do not actually have to visit the Caribbean country whose citizenship you are acquiring: all the application documents can be submitted online or sent by mail and the passport will be delivered to you with a courier when it is ready. Many people have used this opportunity before but things are becoming different now: many foreigners want to stay on the islands for a long time or maybe even for good.
The increased number of foreign applicants for Caribbean citizenship makes the Government officials somewhat confused. On the one hand, foreigners are bringing money, and on the other one, a shortage of investment objects may soon appear in sight. Only the development projects approved by the Government will qualify for the citizenship by investment program in all Caribbean states that run such programs. (Most of these projects are hotel complexes, many of them still under construction.) The minimum required investment amount is US$ 200,000 if you want to obtain citizenship by investment in the Caribbean basin. This is not a small sum of money but the interest in Caribbean real estate on the part of foreign investors is growing anyway.
The US authorities are obviously unhappy to see wealthy Americans renouncing their citizenship: ‘Where are you going, dear taxpayer?’ So there is a possibility that they might want to discourage the Governments of the Caribbean states from issuing passports to Americans thus making it easy for them to renounce their home country citizenship (nobody wants to be a stateless person without doubt). This is only one reason why you should not put off till tomorrow acquiring citizenship by investment in the Caribbean.
Please find out about the requirements to foreign investors wishing to acquire citizenship of one of the five Caribbean countries listed above:
- Citizenship of Antigua and Barbuda by investment
- Grenada citizenship by investment
- Dominica citizenship by investment
- Saint Lucia citizenship by investment
- Citizenship of Saint Kitts and Nevis by investment
You are also welcome to apply for a free personal consultation with InternationalWealth experts on issues related to obtaining foreign citizenship and a second passport. Please write to info@offshore-pro.info and we will get back to you ASAP.
How many Americans renounced their citizenship last year?
The figures may differ somewhat if you consult different sources but the number of Americans who renounced their citizenship in 2020 is 6,705 or so, which is a record-breaking number. Immigration specialists agree that the number might have been greater if the American embassies and consulates had not been closed for the best part of the year. The current trends suggest that even more Americans may want to renounce their citizenship by the end of 2021.
Why do Americans renounce their citizenship?
Some of them do it for political reasons but most Americans renounce their citizenship for fiscal reasons. The FATCA obliges all foreign banks to report all American citizens opening accounts there to the USA fiscal authorities. If they fail to do so, they will face astronomical fines. The reporting costs involved are considerable, however, which makes the banks want to get rid of American customers. So if an American citizen has an offshore bank account, for example, he or she may have to choose between two evils: losing the account or renouncing American citizenship. Some choose the latter evil.
Why should I apply for Caribbean citizenship right now?
The number of Americans wishing to renounce their citizenship is growing, which does not make the fiscal authorities of the country happy, of course. The Caribbean states offer national passports at prices that are affordable for many US citizens. There is a chance that the US administration may apply pressure to the small island states in the Caribbean in an attempt to stop them from alluring US citizens and making it easier for them to renounce their home country citizenship.
