Do Multi-Country Citizens and Residents Pay U.S. Taxes

Do Multi-Country Citizens and Residents Pay U.S. Taxes

Avoid Scams About Becoming a Global Nomad to Avoid Taxes

When it comes to taxes, there is a universal truth that the fewer taxes a person must pay the better they feel. People work very hard for their money and oftentimes they feel like the government is not putting their tax dollars to good use. As a result, some U.S. Taxpayers may consider moving outside of the United States to other foreign countries because they believe that they can avoid having to pay taxes to the IRS that they would otherwise have to pay if they were living in the United States. Unfortunately, it is not that easy and some unsuspecting taxpayers who end up acquiring multiple citizenships or golden visas may believe. Oftentimes, these same taxpayers find themselves in a worse tax position than they were when they started. In addition, unfortunately, some taxpayers rely on non-tax professionals they find online who try to present themselves as ‘experts’ when they have no background in tax or accounting — and the ‘services’ they offer are outdated, ineffective, and inefficient — with no basis in reality. Marketing and tax sleight of hand tricks aside, let’s look at some of the issues and very real concerns about becoming a tax nomad.

First, What is U.S. Worldwide Income?

The first thing to keep in mind is that the United States files a citizenship-based taxation model. That means that when a person is considered a U.S. person for tax purposes, they are taxed on their worldwide income whether or not they live in the United States and whether or not the income is sourced from the United States or sourced abroad. Therefore, taxpayers who are U.S. Citizens and Lawful Permanent Residents especially have to be careful because just moving overseas does not eliminate the U.S. tax and reporting requirements.

Collecting Passports is Not a Sport

There are very real-world consequences to having multiple passports, which can result in significant tax liabilities, fees, and other headaches. Taxpayers should research the ins and outs of each passport they are considering acquiring before obtaining it.

Digital Nomad

A recent trend has been the idea of becoming a digital nomad. By becoming a digital nomad, a taxpayer may temporarily reside in a foreign country or multiple countries to live and work in that country without becoming a citizen or permanent resident of that country. In addition, some of these countries offer tax incentives for taxpayers who relocate to that country even temporarily. However, digital nomads who are U.S. citizens or otherwise U.S. persons for tax purposes are still taxed by the US government on their worldwide income, including income generated in a foreign country as a digital nomad.

Tax Nomads Relying on Treaties

Some taxpayers believe that if they are US persons for tax purposes but reside outside of the United States they can rely on various treaties to avoid taxes. Taxpayers must realize that first, they have to reside in an income tax treaty country that has entered into a treaty with the United States. Next, they have to determine whether or not they qualify under the treaty to be treated as a foreign person for tax purposes because U.S. citizens generally do not qualify very third if the country that they are residing in has a treaty with a third country that may eliminate the tax for residents between those two different countries — if the person is still considered a US citizen or otherwise a U.S. person for tax purposes they are still taxed on their worldwide income.

Multiple Citizenships and Passports

Just obtaining multiple citizenships will not do anything to reduce a US person’s tax liability and in fact, may actually increase tax liability because the foreign country may have additional taxes that are not eligible for the foreign tax credit. Stated another way, as long as the person remains a U.S. citizen than just obtaining multiple citizenships will not reduce or eliminate the US tax requirements — and in fact, it may increase the overall tax liability.

Golden Visa Citizenship

unless a golden visa for citizenship is going to offer some exceptional benefit to a U.S. citizen or the US citizen intends on expatriating from the United States and has no other citizenship then oftentimes golden visas could be more headache than they’re worth. Before obtaining a golden visa for citizenship. Taxpayers should do some very serious research into what are the real-life responsibilities (and consequences) of being a citizen of that foreign country.

Golden Visa Residency

obtaining a golden visa for residency purposes may be a good investment for taxpayers who want to travel the world and do not receive the same benefits with the US passport that they may receive from a golden visa in that foreign country. While technically having a golden visa is not going to impact your tax liability in the United States, if the purpose is for travel instead of tax minimization then it may be a good investment and something that a Taxpayer may want to consider. They should be sure to consult with a specialist in the particular country where you are seeking to obtain the golden visa and not just from some online, uncredentialed individual who just wants to sell you on their ‘services.’

FEIE, FTC, and SPT Exceptions

While simply obtaining multiple citizenships will not reduce a person’s U.S. tax liability, there are other methods that U.S. citizens and other U.S. residents can use to reduce their taxes. They may qualify for the foreign earned income exclusion if they work outside of the United States, they may be able to claim foreign tax credits if they have already paid tax in a foreign country, and they may be able to avoid U.S. person status if they qualify for a treaty election or substantial presence test exception.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm for assistance.