The Tax Consequences of Expatriation

Published 07 December 2017

The U.S. is one of the few countries in which citizens are taxable based on their worldwide income, regardless of their country of residence. Only a few other countries—the Philippines is one—take this approach to individual taxation, with the majority of countries taxing only residents on worldwide income. The same ramifications— tax on worldwide income, regardless of actual residency—will also typically apply to U.S. green card holders,1 even during periods when they are not living in the U.S.

These tax ramifications, combined with a multitude of other factors, both financial and otherwise, have led to a marked increase in citizenship renunciation and green card forfeiture by long-term green card holders (collectively, “expatriation”). In 2016, 5,411 individuals expatriated from the U.S., up from 4,279 in 2015; overall numbers have increased exponentially in the past decade.

As may be expected, there are tax consequences on expatriation. Based on the expatriate’s specific facts, an “exit tax” may be imposed on his or her U.S. departure. This article looks at expatriation generally, details the potential tax effects, and discusses techniques to minimize the financial impact of expatriation, including gifting strategies prior to expatriation.

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