Do You Need a Second Passport (Hint: Not to Reduce Taxes)

Why Do You Need a Second Passport?

Why Do You Need a Second Passport?

Whether it is because a Taxpayer’s current passport does not provide sufficient travel benefits (visa-free travel for example) for the countries the Taxpayer wants to visit or because the Taxpayer is preparing a Plan B – having multiple passports has become more common. But, before a Taxpayer goes off and acquires a new passport because of something they heard or read on the internet, it is important to understand that while there are benefits to having a second passport and being a dual citizen – there are also negatives to having a second or third passport as well (read: online shysters tend to leave this information out of their sales pitches). Let’s look at why you may want to consider having a second passport, and what the tax implications of doing so may be.

Second Passport for Business

For taxpayers who travel to certain countries for business often and have a close connection to that country, it may be beneficial for them to acquire citizenship in that country – especially if obtaining visas or permanent residency is difficult and uncertain. By becoming a citizen of a foreign country, the Taxpayer may be able to continue and even expand their business presence overseas.

How Strong is the Second Passport?

For some Taxpayers, they have very specific travel requirements. For example, they may want to spend 90 days in each country in the Schengen Zone and not 90 days in the Schengen Zone. Some passports may offer significant travel benefits (without having to obtain a visa) that can make it alluring for a taxpayer to obtain a second or third passport.

Do You Want to Purchase Overseas Real Estate?

Some countries have restrictions when it comes to purchasing real estate and they require the Taxpayer to be a citizen of the country and provide the passport as proof of citizenship.

Qualifying for Medical and Education

Especially for Taxpayers who may be relocating to a foreign country for a significant amount of time and have family with them, it is important that they have life services, such as qualifying for medical and education benefits. In some countries, these services are only offered to citizens of the country.

Are You Considering Expatriating from the U.S.?

If you are considering formally expatriating from the United States, the U.S. requires the Taxpayer to already have foreign citizenship in order for the expatriation application to be approved. Thus, for taxpayers who want to expatriate – but are just not sure exactly when they will do so – having the second citizenship already handled can make the process less stressful.

Don’t Forget About Taxes

By acquiring a second passport and becoming a citizen of that country, you may be subject to more or different taxes than you would be in the U.S. And, if you still qualify as a U.S. Person, then you are also subject to U.S. taxes on foreign income as well. Since some countries have taxes that would not qualify as income taxes for U.S. foreign tax credit purposes, it is important to assess the tax implications of becoming a citizen of another country in order to obtain a second passport.

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.