More than two-thirds of the American clients recently polled by deVere Group told us that they had "actively considered," "are thinking about," or "have explored the option of" giving up their U.S. citizenship.
Yes, you read it correctly: 68% of the U.S. citizens we surveyed report that they are interested in severing ties with America. A shocking figure? Indeed. It is also supported by official statistics of passport relinquishments. The number of Americans relinquishing their U.S. citizenship surged in the second quarter of 2013, to 1,131 cases, compared with 189 in the same period in 2012.
But it is perhaps not as shocking when you consider that it was U.S. citizens living overseas who were the respondents in deVere's survey and that it is the estimated 7.2 million American expatriates and 13 million green-card holders who are the ones who are soon to suffer the serious, adverse effects of the Foreign Account Tax Compliance Act (FATCA), a new law that Washington will bring into effect on July 1.
FATCA, which purportedly is designed to tackle tax evasion an objective that it cannot achieve effectively with its dragnet approach presents a host of major challenges for U.S. expats. These include being rejected from banks in their country of residence, because due to FATCA's burdensome regulations Americans are now typically deemed more trouble than they are worth by foreign financial institutions.
Bearing all this in mind, it is arguably quite understandable and sensible that such a high number of U.S. citizens abroad anyone with overseas assets of more than $50,000 is covered by the complicated and costly new reporting requirements have or are considering renouncing their American citizenship, a move that would put them beyond the reach of the Internal Revenue Service.
Unsurprisingly, the vast majority of Americans tell us that they find the prospect of possibly relinquishing their U.S. citizenship due to a new piece of contentious legislation deeply unpalatable. Citizenship is often a huge part of identity, especially for expats. Surrendering it can be a deeply emotional experience.
With this in mind, I recommend that all other bona fide options to mitigate FATCA's onerous, expensive and privacy-infringing burdens are fully explored first. This is also important financially, because there are also established disincentives, such as exit taxes, for those wishing to cut ties with the U.S. for tax reasons.
It is therefore not unreasonable to assume that as the FATCA deadline looms and Americans overseas move to seek other, less drastic, ways to mitigate FATCA's adverse effects, the steady upward trend in passport relinquishments we have seen in recent times will taper off.
In March, deVere Group, which has more than 80,000 mainly expatriate clients worldwide, reported a 45% increase in the number of clients enquiring about the various FATCA-compliant solutions that are now available. One such solution for the U.S. taxpayer with assets abroad is to create a tax-efficient, supplementary overseas pension contract.
I have objected to FATCA from the start, not only because it is an expensive and ineffective way to achieve its stated aims of fighting the serious global issue of tax evasion, and not only because of the negative impact it will have, and is already having, on Americans who choose to live and/or work outside of the U.S.
Like many others, I also fiercely oppose this law for its raft of wider adverse implications. Beyond turning U.S. expats into financial pariahs in their country of residence, it gives a leprosy-like status to U.S. businesses that operate internationally and will slash foreign investment in America. There are also the issues of FATCA's intergovernmental agreements (IGAs) violating other nations' sovereignty and local laws, and possibly damaging important international trade accords. All this to perhaps recover up to $1 billion per year, a figure repeal-FATCA lobbyists estimate is enough to run the federal government for less than two hours.
Green is the founder and CEO of deVere Group, an international financial advisory firm with $10 billion of funds under administration and management. He is based in Dubai.