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American Expatriates
Our organization speaks to at least one new American client interested in expatriating every week. In most cases, the individuals are unable to pay the federal tax rate and live in the style they desire.
Every student of American taxation is required to memorize Judge Learned Hand's declaration: "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
Many people are shocked to find that there are now Americans expatriating and willing to give up their U.S. citizenship in the process. There are now boatloads of Americans willing to adopt foreign citizenship rather than submit to what they believe is confiscatory taxation.
In 1981 Ronald Reagan lowered American tax rates. The following year, no U.S. citizens renounced their citizenship. The expat community, however, grew by 306 names in 1993 and has picked up speed ever since then. The new American tax exiles include:
- Michael Dingman, a Ford Motor director, who is now citizen of the Bahamas and lives there.
- John Dorrance III, a billionaire heir to the Campbell Soup fortune who is now a citizen of Ireland and lives there as well as in the Bahamas.
- J. Mark Mobius, a successful emerging market investment manager. Mobius was born a U.S. citizen. Mobius was able to obtain German citizenship via his ancestry. He lives in Hong Kong and Singapore.
- Kenneth Dart, an heir to Dart Container, who is now a citizen of Belize.
- Ted Arison, founder of Carnival Cruise Lines, has kept his Israeli citizenship and now lives there.
These new American tax exiles join many long standing one including Robert Miller, a major shareholder in Duty Free Shoppers International Ltd. Miller has a British passport obtained in Hong Kong.
The U.S. is virtually the only country in the world that enforces extremely high rates of income and estate taxes on the worldwide income and assets on non resident citizens. Expatriation has become the ultimate tax planning tool.
A former American citizen, for example, who adopts Bahamian nationality pays zero estate tax. There are generally significant income tax savings in renouncing U.S. citizenship. For instance, St. Kitts-Nevis and the Cayman Island levy no income taxes while Costa Rica and Panama do not the foreign income of retirees.
Although some may have second thoughts about expatriation for patriotic and practical reasons, the costs of American citizenship may eventually outweigh renunciation. The loss of American citizenship is not terribly burdensome. Telecommunications and convenient international airline schedules facilitate the expat life. Now with the Internet and satellite television, an expatriate can be as well informed living in San Jose as in Manhattan.
Frederick Krieble, a director and former treasurer of Loctite Corp., moved to the Turks and Caicos Islands, where he runs an investment company. Expatriation is not limited to the super rich. Jane Siebels-Kilnes, a vice president of Templeton, Galbraith & Hansberger, in Nassau, followed in the footsteps of Sir John Templeton. Templeton gave up his U.S. citizenship in 1962 and moved to Nassau. As a result, Templeton saved over US$100 million on the sale of his investment management company in October 1992.
Obtaining a second nationality is not quite as expensive as one may think. For example, St. Kitts-Nevis requires the purchase of US$150,000 worth of local real estate and paying US$50,000 in fees for instant citizenship. For those with time on their hands, Costa Rica offers permanent residency with a US$50,000 investment in reforestation and a passport a few years later. Many mid level executives and small business people nearing retirement consider expatriation as a method to ensure a high standard of living in a comfortable environment.
Of course, expatriation is a fairly easy alternative for the super rich who hold dual citizenship and whose wealth is heavily concentrated abroad; however, renunciation by upper middle class Americans has become even more appropriate as high taxes and irresponsible litigation have lowered the emotional and economic breakeven point.
Although preferable from a legal perspective, an American does not necessarily have to renounce their citizenship. Many U.S. citizens do not mention their participation in the estimated US$2 trillion held in offshore financial accounts.
Wealthy Europeans and residents of the third world have sent their funds overseas for years. Only now, Americans are catching up. Today, Americans are beginning to feel the same uncertainty about their possessions and the need to send their funds to relative offshore safety.
Foreigners and former Americans can invest in the United States with much more ease than an American citizen. Although the IRS would like to tax non-voting foreigners into oblivion, the U.S. needs to think twice given the risk that foreign savings are a major financing source for the American budget deficit. The United States must compete for international capital. If Washington treats foreign capital poorly, it can easily go elsewhere. Many individuals are surprised to learn about the American tax exile movement, but they must remember that there even exist limits to the costs individuals are willing to bear with U.S. citizenship.
