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Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

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Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#51

Post by deciplex »

philiphodgen wrote: post #46
toomuchtodo wrote: post #41

Earlier quoted context omitted.

> After that you only file income tax returns if you have income from US sources or you become a US resident. Example: So your US corporation "pays" your Ireland corporation, who than pays you in the EU? Would that avoid the income from being considered US sourced?

The US taxes you on wages only if you are within the borders when you do the work. So a noncitizen doing work outside the USA and getting paid by a US customer or employer is not taxable in the USA on those wages. You would not need that intervening corporation in Ireland for income tax reasons but there are probably good business reasons for putting a layer between you and the US company. If you are a US citizen you…

>If you are a US citizen you are taxed on your wages no matter where you are on Planet Earth. Some relief is possible (first approx $100k not taxable, for instance).

Correct me if I'm wrong, but after that $100K deduction you're essentially paying the higher of the local tax, or the US tax?

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#52

Post by nationcrafting »

scrumper wrote: post #31
clamprecht wrote: post #23

Earlier quoted context omitted.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

US citizens overseas are required to declare all income (and capital gains) to the IRS regardless of source. They still have to file returns in the US. Bob will owe tax as a result, but he can probably write off the 4% he payed in PR against his US taxes. He's not a resident of California, so he likely avoids the state tax. (Note: I don't know specifically about Puerto Rico, but generally the above is the case for US…

Read up about it, if you can find the time: the Puerto Rico situation is different than all other foreign countries for US citizens.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#53

Post by graeme »

philiphodgen wrote: post #49
graeme wrote: post #44

Earlier quoted context omitted.

Are all non-citizens required to file US tax returns for US source income, or is that a rule specific to citizens? A large chunk of this forum likely has US source income, so it would be good to know.

If the US source income has tax withheld at the correct amount (default is 30%) then no tax return is required. The magic is in understanding the metaphysics of the definition of US source. Just because the money comes from a US customer doesn't mean that you have US source income. If I hire a web developer in Canada and he designs my site whilst sitting in a chair in Vancouver, the income he ears from me is not US s…

Ah, that makes sense, actually. What about someone in Canada, selling a product on a website hosted in the US, with a customer billing address in the US?

My intuition says "not us source" because the production and administration of the product was in Canada.

There are also categories of income which are exempt from witholding, such as royalties. For instance, Canadian authors receive royalty cheques from Amazon with no witholding if they submit a W-8BEN. Is their income "non-US source" because the owner is not resident in the US?

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#54

Post by toomuchtodo »

philiphodgen wrote: post #46
toomuchtodo wrote: post #41

Earlier quoted context omitted.

> After that you only file income tax returns if you have income from US sources or you become a US resident. Example: So your US corporation "pays" your Ireland corporation, who than pays you in the EU? Would that avoid the income from being considered US sourced?

The US taxes you on wages only if you are within the borders when you do the work. So a noncitizen doing work outside the USA and getting paid by a US customer or employer is not taxable in the USA on those wages. You would not need that intervening corporation in Ireland for income tax reasons but there are probably good business reasons for putting a layer between you and the US company. If you are a US citizen you…

Thank you!

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#55

Post by philiphodgen »

hkmurakami wrote: post #48
philiphodgen wrote: post #7

Earlier quoted context omitted.

After you give up citizenship you file a tax return for that year. After that you only file income tax returns if you have income from US sources or you become a US resident. The 10 year rule was repealed in 2008.

When you give up your citizenship, don't you owe the IRS capital gains tax on all assets you own, as if you had liquidated them? (iirc)

Correct. If you are "rich" ($2 million net worth or $157k average tax bill over the previous five years) then you pretend you sold everything. The first $680k of gain is tax free but you pay tax on everything above that. Bad things happen to your retirement plans and IRAs.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#56

Post by philiphodgen »

philiphodgen wrote: post #46
toomuchtodo wrote: post #41

Earlier quoted context omitted.

> After that you only file income tax returns if you have income from US sources or you become a US resident. Example: So your US corporation "pays" your Ireland corporation, who than pays you in the EU? Would that avoid the income from being considered US sourced?

The US taxes you on wages only if you are within the borders when you do the work. So a noncitizen doing work outside the USA and getting paid by a US customer or employer is not taxable in the USA on those wages. You would not need that intervening corporation in Ireland for income tax reasons but there are probably good business reasons for putting a layer between you and the US company. If you are a US citizen you…

@deciplex - you are right if you live in a country with an income tax.

If you live in a country with no income tax then your US income tax is a net cost to you -- making you poorer compared to that British coworker who makes the same salary as you but pays no UK tax. Look around Dubai. Count Americans and count British people. Tax is part of the reason.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#57

Post by electromagnetic »

philiphodgen wrote: post #22
jmadsen wrote: post #13

I wish the title of the article better reflected the real point - explained in the article itself - instead of saying "escape tax rules", with all the implications The fact is, more and more of us with solid middle-class incomes and perfectly normal lives are becoming increasingly concerned about laws that are poorly explained and advertised to us, but with huge potential penalties if we go unaware of them. These are…

The paperwork burden caused by poorly known and viciously complex tax rules is probably the first reason people give me for cancelling citizenship. Especially since the US government seems hellbent on imposing astonishingly large penalties for paperwork failures. The risk is too large for middle class people. The second tax reason people give is the estate tax.

A family friend ran into this. She lived in Canada nearly all her working life and only heard about having to file paperwork with the US when it was being announced there was going to be a crackdown due to the recession.

Fortunately between her and her husband they had enough money to get a good lawyer and get it sorted out before they tried to nail her for all the tax she owed.

I think the biggest issue with the "tax by citizenship" is that it turns US citizenship into a commodity to be traded for personal benefit.

It's noble to try to chase the tax dodgers, but it's a lot more practical to tax the people who stay and ensure anybody who wants to flee is going to be losing sizeable amounts of their property.

Canada has investment rules based on nationality/citizenship and the owners of those shares can't just elope and expect to keep their controlling interests. In fact most of the big companies that face these rules have their foreign investments near maximum, so that anyone fleeing would be forced to sell all their stake and selling a big stake of any company means selling at a sizeable loss.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#58

Post by philiphodgen »

graeme wrote: post #53
philiphodgen wrote: post #49

Earlier quoted context omitted.

If the US source income has tax withheld at the correct amount (default is 30%) then no tax return is required. The magic is in understanding the metaphysics of the definition of US source. Just because the money comes from a US customer doesn't mean that you have US source income. If I hire a web developer in Canada and he designs my site whilst sitting in a chair in Vancouver, the income he ears from me is not US s…

Ah, that makes sense, actually. What about someone in Canada, selling a product on a website hosted in the US, with a customer billing address in the US? My intuition says "not us source" because the production and administration of the product was in Canada. There are also categories of income which are exempt from witholding, such as royalties. For instance, Canadian authors receive royalty cheques from Amazon with…

The income tax treaty can reduce US tax on income paid to Canadians down to zero, depending on the type of income. That's what you are seeing with the W-8BEN.

For selling stuff across borders, source of income is where ownership changes hands from seller to buyer. If the buyer owns the item as soon as it goes into a DHL pouch in Canada, then it is Canadian-source income and the US can't tax it.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#59

Post by philiphodgen »

toomuchtodo wrote: post #43
philiphodgen wrote: post #10

Earlier quoted context omitted.

You have to solve two problems -- your place of citizenship and your place of residence. Dominica and St. Kitts are the two places most people look to buy citizenship. There are other more expensive places too. Residence - this is easier to arrange. If the country will give you a tourist visa you're in, at least temporarily.

Any places cheaper than St Kitts/Nevis ($400K)?

Look at Dominica.

Scam artists have been known to exist in selling citizenship in Central America. Be wary. Don't try clever stunts.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#60

Post by deciplex »

philiphodgen wrote: post #56
philiphodgen wrote: post #46

Earlier quoted context omitted.

The US taxes you on wages only if you are within the borders when you do the work. So a noncitizen doing work outside the USA and getting paid by a US customer or employer is not taxable in the USA on those wages. You would not need that intervening corporation in Ireland for income tax reasons but there are probably good business reasons for putting a layer between you and the US company. If you are a US citizen you…

@deciplex - you are right if you live in a country with an income tax. If you live in a country with no income tax then your US income tax is a net cost to you -- making you poorer compared to that British coworker who makes the same salary as you but pays no UK tax. Look around Dubai. Count Americans and count British people. Tax is part of the reason.

Definitely, though in that case since the local tax is 0 the principle still holds.

Thanks for this, by the way, very informative.

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