4 Steps to Expatriation

Recently by Mark Nestmann: Moving Precious Metals Internationally — the Essentials

When the gold price hit $1,800/oz. today, the first thought I had wasn’t to congratulate myself for buying most of what I own for under $400/oz. It was wondering how soon my own gold holdings would make me a “covered expatriate.”

If this sounds like Greek to you, let me explain. Under the U.S. Tax Code a covered expatriate is someone who may have to pay an exit tax upon giving up U.S. citizenship or long-term residence, among other unpleasant consequences.

I’m not yet a covered expatriate, but if gold prices go much higher, I will be. If I subsequently expatriate, I may not only have to pay an exit tax but also pay tax on the full value of my IRAs. Plus, as a covered expatriate, I can’t make gifts to U.S. persons without the recipient being required to pay a transfer tax up to 35% if the value of the gifts exceeds $13,000/year. That rate is slated to rise to 55% in 2013.

The most common way to become a covered expatriate is to have a net worth that exceeds $2 million. As global central banks create more and more money out of thin air, anyone who owns a significant quantity of gold will soon meet that threshold.

I’m not ready to expatriate, so I must take the risk of becoming a covered expatriate as gold continues to rise. But if you want to sever your responsibility to file U.S. tax and information reporting returns, and eliminate increasingly onerous restrictions on your ability to live, work, invest, or do business overseas, you must give up your U.S. citizenship and passport.

How to Expatriate

There are four steps a U.S. citizen or permanent resident must take to expatriate:

Step 1. Move your assets to safer havens where there is enhanced protection for wealth. Some of the most popular wealth havens include Switzerland, Liechtenstein, and Austria in Europe; Panama and Uruguay in Central and South America; and Hong Kong and Singapore in Asia.

Step 2. Find a residence country that offers greater personal freedom. These are the countries that you may wish to relocate to in the future. Or buy property there, “just in case.” Popular countries for U.S. expats to live in and/or buy property include: Argentina, Belize, Canada, Costa Rica, Ecuador, Mexico, Nicaragua, Panama, and Uruguay in the Americas; the Bahamas, the Cayman Islands, the Dutch territories and St. Kitts & Nevis in the Caribbean; Belgium, Cyprus, Malta, Switzerland, and the United Kingdom in Europe; and Australia, Hong Kong, New Zealand, the Philippines and Singapore in Asia.

Step 3. Get another passport. Since the only way U.S. citizens can legally terminate their obligations to the U.S. government is to give up U.S. citizenship and passport, they must obtain a second passport in order to expatriate. If you don’t qualify for a second passport by naturalization, marriage, or religion, by far the fastest route to obtain one is to purchase one. The Commonwealth of Dominica and the Federation of St. Kitts & Nevis offer citizenship and passport through a qualifying contribution or investment. There are also two EU countries that will award citizenship and passport to individuals who make outstanding contributions to those countries, including financial contributions.

Step 4. Expatriate from the USA. You can accomplish Steps 1-3 while still residing in the United States. At this point, you face a choice: to expatriate or not? Expatriation is a radical step. There are many complications, beginning with the possibility of paying an exit tax for the privilege of permanently severing your national ties. There’s also the possibility that Congress will eventually make expatriation much more difficult. In another decade, perhaps less, the price of expatriation may be to present a balance sheet to the IRS, and give half the number appearing on the bottom line to Uncle Sam.

When you’re ready to expatriate, it’s easiest if you’re not a covered expatriate. But even if you are, with proper planning, you can reduce or eliminate exit taxes and use your $5 million lifetime gift/estate tax exclusion to make lifetime gifts to your loved ones remaining in the USA.

Reprinted with permission from The Nestmann Group, Ltd.