Primer for Those Considering Expatriation
by Mark Nestmann: Is
$5,000 Gold a Myth?
A growing number
of Americans are frustrated with the way in which their economy
has been managed and are becoming increasingly concerned about future
measures the governement may take to keep its coffers full.
that is arising with increasing frequency is: does expatraition
offer a viable protection to those concerned about a more financially-intrusive
is 'yes', it does offer a completely legal solution for ending your
obligation to pay US income, captial gains, and gift taxes on your
worldwide income. But it is certainly not for everyone and should
only be pursued after lengthy and diligent consideration.
you begin dreaming of a tax-free future, you should realize that
the United States imposes taxes on a broader basis than any other
country. The United States is one of two countries, and is the only
major country, that imposes significant income, capital gains, gift,
and estate taxes on its non-resident citizens.
all other countries, individuals end their liability to pay income
tax after a sustained period of non-residence, generally one year
or longer. But to legally and permanently end U.S. tax liability
on their worldwide income, U.S. citizens must also give up their
U.S. citizenship and passport. This process is called "expatriation."
Yes, it's a
radical step. However, if you're a U.S. citizen, you can make nearly
all of the preparations for a possible future expatriation without
permanently leaving the United States. This is a four-step process:
1. Relocate your assets from the United States to other jurisdictions,
preferably where the assets won't be taxed.
Identify foreign countries where you would consider living,
3. Obtain a suitable second passport
give up your U.S. citizenship and passport
accomplished the first three phases, summarized here in Part I of
this report, the final step expatriation is much easier
than if you're starting from scratch. Part
II of this report describes the expatriation process.
Are you a good
candidate for expatriation? You are, if:
- You are
comfortable living outside the United States, or are already doing
- Your spouse
and children are comfortable living outside the United States,
or are already doing so; and
- You have
already or are capable of shifting the majority of your income
and assets outside the United States.
Relocate Your Assets Outside the United States
With a few
exceptions, the IRC imposes taxes on both U.S. source income and
foreign source income of U.S. citizens. Non-resident, non-U.S. citizens
(also known as "non-resident aliens") pay tax only on
U.S. source income, although some U.S. sources of income (e.g.,
most capital gains) are tax-free.
for this more favorable tax treatment in anticipation of expatriation,
begin moving liquid assets outside the United States to more tax-friendly
jurisdictions. Begin selling assets that can't be relocated (e.g.,
real estate) so that you may reinvest the proceeds overseas.
in countries and investments with which you are comfortable. If
you are accustomed to buying and selling U.S. securities, consider
using offshore bank or brokerage accounts to target non-U.S. securities.
If you are an experienced real estate investor, investigate real
estate purchases outside the United States. Keep in mind that a
targeted investment or real estate purchase may also qualify you
for legal residence in some countries (Phase 2) or even a second
passport (Phase 3). If you have substantial domestic investments
in precious metals, consider moving the metals offshore.
The vast majority
of foreign banks and brokerages now refuse to accept new U.S. citizen
clients, especially U.S. citizens resident in the United States.
However, banks and brokerages in a handful of countries still accept
new U.S. citizen and resident clients and allow them to purchase
non-U.S. securities. A few banks in Austria, the Bahamas, Hong Kong,
Liechtenstein, Singapore, and Switzerland are suitable for this
purpose. The minimum deposits in these banks start at $100,000.
Minimum deposits in offshore brokerages start around $5,000. Fees
are much higher for banking services and securities trading than
in the United States.
Both the accounts
you hold offshore and the income derived from them must be reported
to U.S. authorities. The penalties for failing to make these disclosures
are draconian. Consult with an expert familiar with the tax and
reporting rules for international investments when you file your
annual tax return.
estate is a non-reportable asset for U.S. investors if owned individually
or jointly with your spouse or other individuals. Income or gain
from foreign real estate investment is reportable and taxable. Countries
offering first-world infrastructure and where real estate is relatively
affordable include Argentina, Australia, Canada, Chile, Ireland,
Mexico, New Zealand, Panama, Spain, and Uruguay.
"land mines" exist in offshore real estate investments.
Among them are the lack of a multiple listing service in many countries,
difficulty in establishing good title, and legal provisions giving
squatters the right to live on your property. Retain a knowledgeable
real estate attorney in the country in which you purchase real estate
to avoid problems.
You may transport
precious metals you own in the United States to another country
and store the metals in a safety deposit box, bank vault, or private
vault. One option for doing so is to use a secure shipping service.
Make certain the service not only promises secure transport but
also assists with completing non-U.S. customs and tax declarations.
Another option to transport precious metals out of the United States
is a like-kind exchange under Sec. 1031 of the IRC. If you move
the metals yourself, the best option can be to hire an import agent
in the country to which you're taking them to handle the import
formalities. You will generally post a bond through the agent covering
taxes due (if any) plus the agents fee.
Identify Foreign Countries Where You Would Consider Living
Once you give
up U.S. citizenship and passport, you no longer have the right to
live in the United States. You may generally make brief visits,
but in most cases, you won't be able to stay more than approximately
four months annually without becoming subject to U.S. tax on your
worldwide income based on the IRC's "deemed residence"
rules discussed in Part
II of this report. Finding another country to live in is therefore
an essential part of any expatriation exit strategy.
Even if you
have no plan currently to leave the United States permanently, finding
a country that you may wish to relocate to in the future is a prudent
safeguard. If economic or political conditions deteriorate in the
United States and reach your personal breaking point, having legal
residence in a suitable offshore jurisdiction provides a valuable
If you merely
want the right to live in another country in the form of a residence
permit, but don't necessary want to be physically resident there,
a number of countries can accommodate your needs. These include
Belize, Costa Rica, Malta, Mexico, the Dutch Caribbean territories,
and Panama. In most cases, you can qualify for residence (although
not the right to work in the country) by either making an investment
or demonstrating a minimum guaranteed pension payment. Residence
rights may be purchased in some countries by making an investment
of $80,000 or more in real estate or other assets. A guaranteed
pension payment of $1,000 or more may also qualify you for residence.
In other countries, you may need to qualify on a points system.
Some countries have multiple programs to consider.
Obtain a Suitable Second Passport
To end your
responsibility to comply with U.S. tax and reporting obligations,
you must give up your U.S. citizenship and passport. Without a second
nationality in place and passport in hand, however, giving up your
U.S. passport would render you a "stateless person." Avoid
this status, as it makes it difficult or impossible to legally live
or travel internationally.
A second passport
also conveys numerous other benefits:
- It gives
you the right to reside in the country that issued the passport,
and possibly other countries. For instance, a passport from a
member of the European Union conveys the right to live and work
in any other EU country.
- It gives
you a way to travel internationally if your primary passport is
lost or stolen, or if the issuing government confiscates or refuses
to renew it.
- It provides
you with the opportunity to travel to countries blacklisted by
the government that issued your primary passport. For U.S. citizens,
this includes countries such as Cuba, North Korea, etc.
- It avoids
disclosing your primary nationality, should you ever need to keep
that a secret. This can be useful if you're ever confronted by
militants who oppose the government that issued your primary passport.
You may qualify
for a second citizenship and passport by ancestry, marriage, religion,
or extended residence in another country. If not, a handful of countries
offer instant citizenship in return for an investment
or contribution. The Commonwealth of Dominica and the Federation
of St. Kitts & Nevis are the only countries with an official,
legally mandated, economic citizenship. (Note: Dominica and
the Dominican Republic are different countries.)
the least expensive option. The nationality law of Dominica authorizes
the government to waive the normal requirement of seven years of
legal residence to acquire citizenship in exchange for a cash contribution.
Total costs including all fees for a single applicant come to about
$105,000. Add $25,000 for your spouse and up to two children under
18. The Dominican passport holders can travel without a visa, or
obtain a visa upon entry, to nearly 90 countries and territories.
of St. Kitts & Nevis offers two options to obtain economic citizenship.
One option is to make a direct contribution to a charitable foundation
set up to support displaced sugar workers: the Sugar Industry Diversification
Foundation (SIDF). Total costs including all fees for a single applicant
under this option come to about $285,000 or $335,000 for an applicant
with up to three dependents.
option is to purchase "qualifying property" with a minimum
investment of $400,000. Fees and closing costs add a minimum of
$100,000. Total costs for a single applicant come to at least $500,000
and close to $600,000 for a family of four. The St. Kitts &
Nevis passport provides visa-free entry, or visa upon entry, to
more than 120 countries, including nearly all of the 27 member countries
of the European Union.
In all cases,
applicants must pass a strict vetting process that includes a comprehensive
criminal background check.
citizenship offerings abound. In recent years, I have received offers
to purchase passports from Costa Rica, Nicaragua, the Dominican
Republic, Ireland, and Lithuania, among other countries. Some of
these offers are outright scams. Others involve illegally purchased
or stolen documents. Even if you succeed in obtaining a passport
on this basis, it may be revoked at any time and you could be subject
to arrest and/or deportation.
completed Phases 1, 2, and 3 of your four-step plan to disconnect
from the United States, you're ready for Phase 4: expatriation.
While you may never take the final step of giving up your U.S. citizenship
and passport, taking the preparations summarized so far at least
gives you that option.
Part II: Important Consequences of Expatriation, we explore:
- The nuts
and bolts of expatriation, including the legal process of expatriation
- The tax
consequences of expatriation
- The immigration
consequences of expatriation
- The pros
and cons of U.S. investments once you expatriate
- The tax
consequences should you choose to spend more than a few months
each year in the United States after expatriation
here to read Part II of this report (free executive summary;
enrollment required to access).
with permission from ChrisMartenson.com.
Nestmann [send him mail]
is a journalist with more than 20 years of investigative experience
and is a charter member of The
Sovereign Societyís Council of Experts. He has authored over
a dozen books and many additional reports on wealth preservation,
privacy and offshore investing. Mark serves as president of his
own international consulting firm, The
Nestmann Group, Ltd. The Nestmann Group provides international
wealth preservation services for high-net worth individuals. Mark
is an Associate Member of the American Bar Association (member of
subcommittee on Foreign Activities of U.S. Taxpayers, Committee
on Taxation) and member of the Society of Professional Journalists.
In 2005, he was awarded a Masters of Laws (LL.M) degree in international
tax law at the Vienna (Austria) University of Economics and Business
© 2012 Chris
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