In a recent column, Cal Thomas describes the account of a friend named “Sam,” who is learning that being an American overseas comes with high costs:
I had read about financially motivated expatriates, but I never knew one until I visited with my longtime friend “Sam” (I’m withholding his real name to protect his current employment). Sam works for a large investment firm. He has lived here for the last 25 years.
He says that five years ago, he began thinking he could no longer “afford to be an American.”
…Here is how burdensome U.S. tax laws have become: Seven years ago, Sam left a major firm based in the U.S. to join another international bank. The law required that his 14 years of pension savings be taxed at a 35 percent rate as current income. He says he could not roll over the account due to a “quirk” in the law. Hong Kong citizens are taxed at a rate of only 15 percent.
Another consideration was the refusal by Hong Kong banks to allow him to open a securities account. The reason? “None wanted to deal with onerous U.S. reporting requirements. My own bank could not even open an account for me to invest in local securities.”
“I had paid over $1 million in U.S. taxes but didn’t receive any benefits, nor did my wife and kids. (She maintains her U.S. citizenship.) As I saw the massive U.S. deficit continue to climb, it became clear that the government would likely raise taxes further. I finally decided to expatriate. … A dozen of my friends who have lived over 10 years in Asia have done the same. We can no longer afford to be American citizens.”
As Thomas explains, the situation is made even worse by the fact that the US shakes down expatriates one last time before they are allowed to drop their citizenship:
Eugene Chow, an attorney who specializes in helping Americans give up their U.S. citizenship, told the Wall Street Journal’s “Asia Today” program that the move comes at a high price. Not only is there an “exit tax,” but all appreciated assets, including homes, are assessed a 15 percent capital gains tax, even if they haven’t been sold.
Chow says, “The IRS is essentially outsourcing its compliance rules to non-American-related companies and they are saying to Americans, ‘We don’t want your business.’ So that’s more of a practical reason for why some people choose to give up their passports — to make it a less complicated life living overseas.”
Thomas doesn’t explicitly mention it, but a large reason why American citizens are considered toxic by foreign institutions is the Foreign Account Tax Compliance Act (FATCA). As I explained in a recent op-ed:
…Compliance costs for each and every FFI could reach upwards of $100 million, with the looming threat of a 30% withholding
tax on U.S. source payments in the case of non-compliance. One estimate by the European Banking Federation and the Institute of International Bankers places the total cost for just the top 30 foreign banks at $7.5 billion.
Another predictable consequence of the law is that many institutions choose to avoid the costs of compliance by refusing to service Americans. Major banks like HSBC, Deutsche Bank, Credit Suisse and Commerzbank are dropping their U.S. clients. This not only causes a huge inconvenience for Americans living and working overseas who can’t even find an institution where they can deposit their paychecks, but because these banks are also avoiding the penalties for non-compliance by disinvesting in U.S. assets, it is a hit to the economy as well.
Because of the severity of the damage being done by FATCA, CF&P is working hard with lawmakers and like-minded groups to turn back this destructive law. While it will not be easy, we know it can be done.
