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Top 3 reasons to give up citizenship

Many people around the world give up their citizenship for various reasons. Let’s look at the top reasons for giving up your citizenship and taking up citizenship of another country.

This article is not about a particular country’s citizenship such as US citizenship or UK, Canada, Australia, Germany, France or Singapore.

US citizenship passport

In this article, we will look at some of the countries where people are rapidly giving up their citizenship, and reasons for it.

Before that, let’s appreciate that the prospect of giving up citizenship divides people in two categories:

1. The emotional ones

2. The practical ones

The emotional ones: Many people I have spoken to are emotionally attached to their citizenship. It is a sign of their identity, or part of their identity. Giving up citizenship, is like renouncing your parents, one person told me. Another said, citizenship is a privilege. It is something to be proud of, and should not be traded for anything.

In the emotional category, there is one minority extreme – the disgruntled emotional. They are so politically fed up of their country that they would give up their citizenship at the first opportunity.

The practical ones: This article is largely about this type. These pragmatic wanderers would consider the pros and cons of giving up their current citizenship for a more favorable nationality. There’s little or no emotional bond with citizenship for these people.

Here we will not discuss the emotional reasons for keeping or renouncing citizenship.

Here, we will only consider reasons that practical people are considering for renouncing their citizenship.

1. Tax

This one applies to the US citizenship.

Americans are giving up their citizenship in record numbers. About 10 years ago, only 500 US citizens gave up their citizenship. In 2013, that number was SIX times as high – at 3000, according to International Tax Blog.

Why? Because the United States probably the only country in the world which taxes its citizens wherever they live in the world. So, a US citizen could be living in Italy for 20 years, and could still be expected to pay US tax on income earned outside the United States.

This is not the case for most countries. For example, if you are a Brit living in Canada, you will have to pay only Canadian tax, not UK tax. You will not be taxed twice. This is not the case for American citizens.

When the global economic recession peaked in 2008, the US administration decided to come down heavily on tax evaders. The US government wanted to crack down on Americans storing their wealth in Swiss bank accounts.

As a result, they wanted to know the overseas assets and bank account details of all American citizens.

While this was intended to stop tax evasion, the crack-down affected honest American bank-account holders too.

Many Americans have now started to renounce their American citizenship. In fact, the queue for renouncing the US citizenship in Switzerland is so long that there’s a waiting list, according to a media report.

It is felony under the US law if an American citizen living abroad fails to pay US tax on their income overseas. The US government has treaties with most countries for extradition of US citizens from other countries if they fail to pay tax to the US government.

Wait. It gets worse. There is the 2010 enactment of the Foreign Account Tax Compliance Act (FATCA).

Under FATCA, many financial institutions outside the United States will need to report to the IRS (American tax department) the account details of the US citizens.

Uncle Sam has made it hard to escape the IRS.

Obviously, the easiest solution for many non-resident American citizens was to give up their American citizenship, rather than pay double tax.

2. Marriage and divorce

Most foreign nationals who marry an American citizen choose to take up American citizenship. In doing so, they renounce their existing citizenship. This is because the United States requires a person to go on oath ‘renouncing’ their original citizenship. However, the US administration does not explicitly seek the person to give up their original citizenship.

This is another reason why people give up their original citizenship and become “naturalised” citizens of the United States. If you were not born a US citizen, then you can acquire U.S. citizenship through naturalization.

For naturalization, you must be A. 18 years of age or older, and B. a permanent resident of America for five years. Spouses can apply for US citizenship after three years of marriage to a US citizen.

However, spouses may fall out and marriages may end. In such instances, a spouse may want to leave America. The US government allows naturalized citizens to retain American citizenship, even after they leave America and reclaim their original citizenship.

But a spouse may consider giving up US citizenship, so as to avoid paying taxes to the US tax department, on income earned outside the United States.

3. Travel

This is the third most common reason for giving up your existing citizenship.

Many people have a love for travel, and would be keen to make at least one overseas trip a year.

However, if you are a citizen of a country from Asia for example, you will need visa to visit most countries popular with tourists.

visafreePassport

But citizenship of certain countries give visa-free entry to most countries around the world. And if an avid traveller has a choice between keeping their original citizenship with limited visa-free entries, and choosing citizenship of a country that opens visa-free doors to more destinations, the choice becomes obvious.

The countries that offer visa-free entry to 170 countries or more, are:

  • The United Kingdom, Sweden and Finland. (visa-free entry to 173 countries)
  • The United States, Germany, Denmark and Luxembourg (172 countries)
  • Belgium, Italy and Netherlands (171 countries)
  • Canada, France, Ireland, Japan, Norway, Portugal and Spain (170 nations)

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