A record number of Americans are giving up citizenship, largely due to the fear of facing punishment under FATCA (Foreign Account Tax Compliance Act).
As many as 6,705 Americans renounced citizenship in 2020, a 260% increase from 2019 when 2,577 Americans gave up their citizenship.
To renounce citizenship, they should appear before the US embassies at the countries of residence. The embassies were closed for large parts of the year because of the COVID-19 pandemic.
Had the embassies not been closed for so long a period of time, the number of renunciations would have skyrocketed, says Americans Overseas, a European organization specialized in US tax laws.
President Donald Trump’s ‘America first’ policy also contributed to the rise in renunciation, but the FATCA was the main driver.
Enacted by the Obama administration, FATCA is designed to uncover Americans stashing away money in banks overseas. The law requires foreign banks to report US authorities about all offshore accounts held by American citizens.
There are nearly 9 million US citizens living abroad. They should pay taxes on foreign income. Hiding financial and other assets is a punishable crime under the law.
Analysts say giving up citizenship is the only option for those who dislike the idea of revealing their assets abroad.
Renouncing citizenship is not easy either. Such persons need to pay $2000 in government fees and file a complete tax return.
Despite these obligations, there has been a growing trend of Americans renouncing citizenship. “A law intended to catch tax evaders inside the U.S. is now dragging innocent Americans living outside the U.S. down,” says Daan Durlacher, partner at Americans Overseas.
Once the embassies open up again full time, the number of people renouncing citizenship will leapfrog, says the organization.