Second Citizenship Becoming a Viable Option for Expats

Citizenship renunciation or second citizenship become viable solutions for expats, especially those with any dealings in crypocurrencies.

January 6, 2020

By: Bobby Casey, Managing Director GWP

citizenship crytpo regulation Oppression is the number one reason why people leave one place for another.

This is why people leave abusive homes.

This is why people flee dictatorships and unaccountable regimes.

This is why people flee high tax and regulation states for other states with less onerous regimes.

When people ask me, “If immigrants are so great for the economy, why don’t they stay in their homelands and make it great there?”

For the same reason the productive class can’t do that in California and move to Arizona, Texas, and Idaho: because the government policies are prohibitive.

Anyone who’s ever done a long distance move knows that relocation is not for the faint of heart or the lazy. This is particularly true when it comes to expatriation. While I’m a strong advocate of doing so, I’m under no illusions that it’s a simple decision or process.

But just as ridiculous laws and taxes in California are driving people out, so too are ridiculous federal laws driving Americans out of the US.

Ever since the enactment of FACTA in 2010, the US has seen a serious uptick in citizen renunciations. Not just expatriation where people go off to live overseas but retain their US citizenship, but people renouncing their US citizenship outright.

Quarterly renunciations went from around 200 per quarter to over 1000 (although recently it’s dipped to 600). The American expatriate population is greater than the population of Switzerland, with a growing number either interested in, or in the process of, becoming one themselves.

Without a doubt, the US is far more tax friendly to foreigners than they are to its own people. While the US remains one of the greatest tax havens for every non US person, the IRS is rolling out new compliance initiatives, which appear to target expats. Six of them, to be exact:

  • S Corporations Built in Gains Tax “C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion.”

  • Post OVDP Compliance “U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements.”

  • Expatriation “U.S. citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or its foreign equivalents.”

  • High Income Non-filer “U.S. citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or its foreign equivalents.”

  • U.S. Territories – Erroneous Refundable Credits “Some bona fide residents of U.S. territories are erroneously claiming refundable tax credits on Form 1040, U.S. Individual Income Tax Return.”

  • Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009 “This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009. In general, Internal Revenue Code (IRC) Section 457A requires that any compensation deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation.”

Through a combination of outreach, soft letters, examinations, and other “treatment streams”. The long and short of it is: the IRS has its sights on expats and American persons. I’m not sure if this is a realignment of priorities within the IRS or if more personnel will be added for the purposes of these campaigns.

Their bandwidth is limited, so their executions will be patchy at best. Still, this is on their punch list.

As if that were not enough, the US is cracking down on cryptocurrencies. The Financial Action Task Force (FATF) provided its “guidance” recommendations last summer, to crack down on money laundering and terrorist financing (inB4 US tax dollars already fund terrorists).

This guidance requires that participating countries pass customer information to each other when transferring crypto assets. The 36 member countries (and two regional organizations) of the FATF have 12 months to fall into compliance, none of whom have anything resembling the ability to do so yet.

  • Name and account number of the originator

  • Originator’s (physical) address, or national identity number, or customer identification number, or date and place of birth

  • Name and account number of the beneficiary

Cross-border transfers below the USD/EUR 1,000 threshold should also include the names and account numbers of originator and beneficiary. However, this information does not need to be verified for accuracy unless there is a suspicion of money laundering or terrorist financing.

What exactly is the purpose of getting the information of those engaging in transactions below $1000 or 1000 Euros? Banks don’t even file paperwork for cash transactions that small.

A company called CipherTrace is looking to launch a pilot program to offer a balance between meeting these guidance requirements, and maintaining the privacy of individuals:

“Our roots in cybersecurity and cryptography run much deeper than any other player in the industry, and our engineers and data scientists are developing cryptographically controlled ways to make KYC and AML faster, more efficient and open, all while maintaining a very high level of privacy and only revealing identity information when compelled to do so by legal authorities.”

That last part… Isn’t that true of everyone who handles our sensitive information? The banks, credit card companies, cell phone companies, ISPs, they all claim to offer high levels of privacy and will only disclose our information when compelled by the government.

Since when has government had any difficulty compelling anyone to do anything? Government spying with extra steps is what this is. The government is entirely incapable of creating this technology, but is perfectly capable of mandating it and criminalizing inaction.

So, the private sector steps up, and does their job for them.

Expats already have a target on their backs from the IRS. But if you’re an expat who has any dealings in cryptos there are now two red lit dots on your chest. This is precisely what has people deviating away from major platforms and moving toward peer to peer activity.

This is also a tacit ultimatum to many expats and crypto enthusiasts. Stick around and play by these rules, OR seek other citizenship.

Having a second citizenship never sounded better!

There are 195 countries in the world. How do you pick a new residence? How do you make it all happen? There are countries not ensnared in all the regulatory nonsense, who are very tax and wealth friendly, and have paths to citizenship for those ready to opt out.

I’m constantly evaluating the ever evolving expat landscape, and welcome the opportunity to discuss this further with you.

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