The charge imposed on American people living abroad who wish to renounce their citizenship may soon be reduced from $2,350 to $450.
This would be of particular interest to ‘accidental Americans’, whose parents are from the country but who have never lived there, or people who were born there but have always lived elsewhere.
Restrictive tax rules
America and Eritrea are the only two countries in the world to apply a ‘citizenship-based’ taxation system, while the rest of the world employ ‘territorial-based taxation’ or ‘residence-based taxation’.
However, several other countries tax non-resident citizens for a short period of time after they move abroad.
Under the US’ 2010 Foreign account tax compliance act (Fatca), foreign banks are required to search their records for American citizens and report their assets to the American tax authorities if they amount to more than $50,000.
This means that many people have to pay tax in the US each year even though they have never worked or lived there.
American citizens should not be taxed twice if they have already paid tax in their country of residence on an income up to $112,000 for 2022, but must still normally file a tax return, and the Fatca rules often make it more difficult for them to open a bank account abroad.
It is often for this reason that Americans living abroad consider giving up their US nationality, and hundreds of these people have enquired about renunciation in France alone, US authorities told The Connexion.
Lawsuit over ‘exorbitant’ fee
Faced with the “exorbitant” $2,350 fee, a group of 1,400 members called the Accidental Americans Association (AAA) filed a lawsuit against the State Department in 2020, calling for the cost to be reduced.
“The fee was introduced at $450 in 2010 and was increased fivefold to $2,350 in 2014. This was ostensibly to cover service costs [...] But the timing coincided with the passage of Fatca, which was clearly expected to incite Americans to give up their US nationality,” the AAA stated.
Now, Assistant Secretary for Consular Affairs in the US Rina Bitter, has stated that the department is considering reducing the fee to $450.
Arguments were made in person at Washington DC District Court yesterday (January 9) but a decision has not yet been published.
Fabien Lehagre, the president of the AAA, has said that the fact the issue is being discussed is “extremely encouraging”.
Even if the fee is reduced, renouncing American citizenship will remain a drawn-out and complex process.