Citizens leave, Companies Invert

Taxes seem to be motivating citizens and companies alike to look for foreign homes.

Jeffrey S. Freeman, J.D., LL.M

companiesFATCA has caused shake ups worldwide among financial institutions and foreign bank account holders, but its impact spreads much broader to offshore citizenship. Many may argue that taxes were the main factor in the past year as record numbers of citizens and corporations gave up their home country.

Citizens choose to leave

In 2013 more than 3,000 citizen were documented as renouncing their U.S. citizenship and the trend is continuing as there has been a 221% increase this year of citizens either renouncing their citizenship or terminating their long-term U.S. residency. So why the sudden increase?

The U.S. taxes citizens on income, regardless of where it is earned or where they reside. Reporting taxes can be so difficult that individuals living abroad or with foreign assets are forced to seek expert help, costing upwards of thousands of dollars. With global reporting for FATCA allowing more visibility into foreign accounts more individuals are giving up their citizenship.

Companies pay taxes too

U.S. companies are following suit and becoming frustrated with the high 35% corporate tax rate in the U.S. That is 35% on their foreign and local income. When other offshore countries, like Ireland have a 12.5% tax rate it becomes clear where the frustration and business advantage comes from.

In order for a U.S. company to avoid paying U.S. taxes on its foreign offshore earnings it needs to be more than 20% foreign owned. To do this the U.S. Company would buy a foreign company or vice versa and move its domicile outside the U.S. Any U.S. earnings would still be taxed at the 35% corporate tax rate, but foreign earnings would no longer fall into America’s tax system.

Take advantage while they can

Regardless of if you think this is unpatriotic or reminds you of someone marrying for citizenship privileges, it is legal. President Obama has expressed his dislike and it trying to change the percentage foreign holdings from 20% to 50% for foreign inversions.

Many companies are rushing to get hitched to a foreigner before any changes are made to the U.S. tax law. Companies that expect large offshore foreign expansion are highly motivated to take advantage of this section of the tax code.

Some may be looking purely at the bottom line, but regardless of their motivations the increases in citizens and companies renouncing their citizenship does not show signs of slowing down.

About Freeman Tax Law

Freeman Tax Law is equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP) and Streamlined Procedures. In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

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