4 ms·

It really doesn't make sense how the US is the only country which insists on taxing their citizens, no matter where they live. It makes American labor less comp

It really doesn't make sense how the US is the only country which insists on taxing their citizens, no matter where they live. It makes American labor less competitive and promotes the insularity of American culture. I'm living abroad and you can definitely see the impact of the US tax system in the background of expats: Americans are severely underrepresented. The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed.

negrit 11y ago
IIRC some countries have treaties with the U.S. and tax American citizens less.
- patio11 11y ago
  The specifics of the tax treaties depend on the country, but in general it works out to avoid double taxation. If you live in a part of the world where income taxes are generally at higher rates than the US, such as most first-world countries, you get a dollar-for-dollar tax credit against your US taxes for foreign taxes paid, which generally extinguishes your US liability. (There exist other options, notably the Foreign Earned Income Exemption, for folks earning below ~$100k a year.) The folks with a trickier situation are the ones who either a) are getting subpar tax advice (really, really easy, since few accountants are qualified to talk about multinational taxation and those that are generally charge a bundle) or b) folks who live/work in a low-taxes-low-services nation but end up getting a mid-taxes-no-services bill tacked on due to their US citizenship. Representative examples of the two regimes: I have lived and worked in Japan for the last ten years. Japanese tax rates are generally on par with or slightly above US tax rates. (There exist important qualifiers on this for practical tax planning for small businesses here.) This results in me every year shipping my accountant a lot of numbers after which he comes up with a calculation which says something like: "Taxes owed to US: $20k; taxes accrued in Japan: $22k; take Japan/US tax treaty credit; net tax owed to US $0." On the other hand, consider a high-salary employee of a bank's Hong Kong office. The HK top tax rate is 15%. The US top tax rate is 39.6%. Uncle Sam will happily advise you that you have to pay the 24.6% difference (on your last marginal dollar, naturally). All of the above assumes one is doing one's level best to pay the lowest tax bill consistent with the clear intent and established practice of the enforcement divisions of the laws of the United States. This, regretfully, does not describe all taxpayers.
deong 11y ago
I'm also an American expat (Iceland), and for a lot of people, there will be no difference except for inconvenience. If you make less than about $100,000 per year, you exclude that income from US taxes completely. You still have to file a 1040, but you just declare the income on one line and negate it five lines later. You send the IRS the completed form showing you owe $0 and you're done. And if you make more than $100,000 but live in a country that isn't a tax-haven, you exclude that income too because you're only taxed on the difference between the taxes you would owe the US government and the taxes you paid in your home country. In Europe at least, you're almost always taxed at a higher rate than the US would have taxed you, so again, you don't owe anything. You're only looking at that 30% burden if you live in a country with no taxes and you make millions of dollars (because again, the first $100k is excluded). I agree it's a bit crazy that the US taxes worldwide income, but the practical consequences seem pretty minimal. My bank has no problem with me as a customer, or at least if they do, they haven't said anything to me about it.
- ptaipale 11y ago
  > there will be no difference except for inconvenience. There also appears to be a factor of risk. I'm not American but have had Americans in my team. A slight procedural error, either by themselves or by the IRS, can be a huge financial and legal problem, and expose the person to litigation. It seems draconian and unfair to me. Thus the practical consequences are more than minimal.
  - deong 11y ago
    I actually talked with an accountant in the US my first tax year living year, and her advice was "don't use an accountant". I have no idea if this is true or not, but according to her, the IRS's view is basically, "we know this is complicated stuff, so do your best, and if you make a mistake, no big deal", whereas if you hire an accountant and get something wrong, the assumption is that you're trying to avoid taxes.
    - ptaipale 11y ago
      That advice sounds to me a bit like if you go on trial for some small thing (let's say a pub brawl), and you're told "don't get a lawyer, it will make you look bad". Perhaps it is sometimes a good advice, but it can also be a spectacularly bad one.
Gustomaximus 11y ago
Not the only country. Norway will also tax citizens in certain circumstances. I believe though Norwegians can state they have left the country permanently (though can still return) and lose rights to social benefits such as unemployment payments until you have been working in the country again.
- Broken_Hippo 11y ago
  Since living in Norway, I've learned of this. It seems that the taxes are generally when you are making money from Norway - it is possible to get disability money from norway, taxed, and live abroad. You do lose the social benefit rights, but you keep your taxed income. My understanding is that they figured that in the long run, it actually saves the country money because of the lack of social services provided, and works out if one moves to a place with a strong exchange rate against the NOK.
- jleyank 11y ago
  One advantage of the US system is that they don't care when you switch your country of residence. My understanding of places like Canada and Australia is that emigration can cause a tax hit as you have to logically liquidate your assets in a final tax filing. Can non-US-ians comment on this?
- deleted 11y ago
  [deleted]
masklinn 11y ago
> The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed. There's a ~100k foreign income tax exemption and many countries have tax treaties with the US which bypass even that and give a US tax credit corresponding to the already taxed foreign income. Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) and there's the additional burden of caring for and declaring your income to the US, most expats don't need to be involved with the home country aside from grousing about it and renewing their passport.
- patio11 11y ago
  Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) Check with your accountant for an authoritative take on the following, but since I happen to be right with a certainty approaching "Gravity exists" I'll write the correction here: There exist two tests by which you can qualify for the Foreign Earned Income Exemption. One is the physical presence test, which is automatically ruled in your favor (i.e. you are ruled to be a foreign resident) if you spend less than 30 days in a tax year physically in the US. The other is the Bona Fide Residence test, which is less of a deterministic question than physical residence. There's no limit to the amount of time you spend in the US every year as long as you meet the IRS examining officer's impression of someone who "clearly lives in a foreign country continuously for an indefinite period." I've had years with upwards of 100 days in the US, and never had any problem with claiming Bona Fide Residence in Japan. As my accountant phrased it once: "If you've got only one refrigerator, and it's on, and it isn't in the US, then you're certainly BFR abroad." For more on this scintillating topic: https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Bona-Fide-Residence-Test https://www.irs.gov/Individuals/International-Taxpayers/Fore...
  - masklinn 11y ago
    Thanks, I'd checked the IRS website a long time ago but I guess I missed the BFR, or assumed you had to fit both rather than either, I only remembered the physical presence test (which you can easily breach if you work in pretty much any EU country, if you spend all your PTO/vacation time back in the US)
onion2k 11y ago
It makes American labor less competitive That's the point. It means skilled American workers are less likely to work elsewhere, thus increasing the competitiveness of America by restricting the supply of skilled workers for the rest of the world. It might suck for individuals but as national policy it makes a lot of sense. Plus it raises more tax.
- morgante 11y ago
  Most expats I know end up sending substantial sums back to the US, either directly or indirectly by moving back their and spending their accumulated savings.
michaelt 11y ago
It really doesn't make sense how the US is the only country which insists on taxing their citizens, no matter where they live. Brit here and I disagree - the American system seems a lot fairer. Taxing on residency rather than citizenship creates a bizarre system where if you're a millionaire you can enjoy all the benefits of being a British citizen, but you can be "domiciled abroad" in Belize, Seychelles, Monaco, or other tax havens. Then you can be British enough to donate millions to a political party, receive a knighthood - but pay far less tax than a middle class office worker. If you want to be taxed like a citizen of Seychelles, it makes sense to me that you'd be a citizen of the Seychelles and not any other country.
- mike_hearn 11y ago
  I'm also British. The American system is insane and catastrophically unfair, which is why you keep seeing news stories about how horrible it is. The British "non dom" system is unique to the UK and is not any particular feature of residency based taxation (which is how every country in the world works save America and Eritrea). And there are constant rumblings about abolishing it or reforming it. I suspect non-dom status will eventually go away, but residency based taxation will stay. At any rate, no country other than America has any chance of implementing such a policy. To make FATCA work required one of the most draconian laws that's ever come out of a democracy. Most people don't understand it at all. The law says that every financial institution in the world must obey the USA. This is enforced by not only taxing US assets, but because many institutions don't have any US assets, forcing those that do to recursively apply penalties to all their trading partners who aren't in compliance. A big part of the cost of FATCA isn't even reporting Americans to the IRS. It's keeping track of every firm you trade with and whether THEY are reporting their customers to the IRS ...... and then violating your contracts with them by withholding payments until they fall into line. I see a lot of people saying things like, well, the threshold is high enough that all I have to do is paperwork. Or "it doesn't seem so bad really". I find this to be naive. Here's what can easily happen next: • The threshold is lowered. As expats have no meaningful representation or organisation as a group, taxing them is effectively free money. • The FATCA recursive enforcement infrastructure is extended to mandate global compliance with other US laws, by making banks impose penalties on any company or person that Congress doesn't like. People get upset as they suddenly realise that US law now takes precedence over their local laws. FATCA is literally a totalitarian takeover of the entire global financial system by America. They don't care if people have to violate local laws in order to obey. The view of Congress is that American law supercedes all local law. It's the formal establishment of a global American empire.
deleted 11y ago
[deleted]

negrit 11y ago

IIRC some countries have treaties with the U.S. and tax American citizens less.

patio11 11y ago
The specifics of the tax treaties depend on the country, but in general it works out to avoid double taxation. If you live in a part of the world where income taxes are generally at higher rates than the US, such as most first-world countries, you get a dollar-for-dollar tax credit against your US taxes for foreign taxes paid, which generally extinguishes your US liability. (There exist other options, notably the Foreign Earned Income Exemption, for folks earning below ~$100k a year.) The folks with a trickier situation are the ones who either a) are getting subpar tax advice (really, really easy, since few accountants are qualified to talk about multinational taxation and those that are generally charge a bundle) or b) folks who live/work in a low-taxes-low-services nation but end up getting a mid-taxes-no-services bill tacked on due to their US citizenship. Representative examples of the two regimes: I have lived and worked in Japan for the last ten years. Japanese tax rates are generally on par with or slightly above US tax rates. (There exist important qualifiers on this for practical tax planning for small businesses here.) This results in me every year shipping my accountant a lot of numbers after which he comes up with a calculation which says something like: "Taxes owed to US: $20k; taxes accrued in Japan: $22k; take Japan/US tax treaty credit; net tax owed to US $0." On the other hand, consider a high-salary employee of a bank's Hong Kong office. The HK top tax rate is 15%. The US top tax rate is 39.6%. Uncle Sam will happily advise you that you have to pay the 24.6% difference (on your last marginal dollar, naturally). All of the above assumes one is doing one's level best to pay the lowest tax bill consistent with the clear intent and established practice of the enforcement divisions of the laws of the United States. This, regretfully, does not describe all taxpayers.

deong 11y ago

I'm also an American expat (Iceland), and for a lot of people, there will be no difference except for inconvenience. If you make less than about $100,000 per year, you exclude that income from US taxes completely. You still have to file a 1040, but you just declare the income on one line and negate it five lines later. You send the IRS the completed form showing you owe $0 and you're done. And if you make more than $100,000 but live in a country that isn't a tax-haven, you exclude that income too because you're only taxed on the difference between the taxes you would owe the US government and the taxes you paid in your home country. In Europe at least, you're almost always taxed at a higher rate than the US would have taxed you, so again, you don't owe anything. You're only looking at that 30% burden if you live in a country with no taxes and you make millions of dollars (because again, the first $100k is excluded). I agree it's a bit crazy that the US taxes worldwide income, but the practical consequences seem pretty minimal. My bank has no problem with me as a customer, or at least if they do, they haven't said anything to me about it.

ptaipale 11y ago
> there will be no difference except for inconvenience. There also appears to be a factor of risk. I'm not American but have had Americans in my team. A slight procedural error, either by themselves or by the IRS, can be a huge financial and legal problem, and expose the person to litigation. It seems draconian and unfair to me. Thus the practical consequences are more than minimal.
- deong 11y ago
  I actually talked with an accountant in the US my first tax year living year, and her advice was "don't use an accountant". I have no idea if this is true or not, but according to her, the IRS's view is basically, "we know this is complicated stuff, so do your best, and if you make a mistake, no big deal", whereas if you hire an accountant and get something wrong, the assumption is that you're trying to avoid taxes.
  - ptaipale 11y ago
    That advice sounds to me a bit like if you go on trial for some small thing (let's say a pub brawl), and you're told "don't get a lawyer, it will make you look bad". Perhaps it is sometimes a good advice, but it can also be a spectacularly bad one.

Gustomaximus 11y ago

Not the only country. Norway will also tax citizens in certain circumstances. I believe though Norwegians can state they have left the country permanently (though can still return) and lose rights to social benefits such as unemployment payments until you have been working in the country again.

Broken_Hippo 11y ago
Since living in Norway, I've learned of this. It seems that the taxes are generally when you are making money from Norway - it is possible to get disability money from norway, taxed, and live abroad. You do lose the social benefit rights, but you keep your taxed income. My understanding is that they figured that in the long run, it actually saves the country money because of the lack of social services provided, and works out if one moves to a place with a strong exchange rate against the NOK.
jleyank 11y ago
One advantage of the US system is that they don't care when you switch your country of residence. My understanding of places like Canada and Australia is that emigration can cause a tax hit as you have to logically liquidate your assets in a final tax filing. Can non-US-ians comment on this?
deleted 11y ago
[deleted]

masklinn 11y ago

> The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed. There's a ~100k foreign income tax exemption and many countries have tax treaties with the US which bypass even that and give a US tax credit corresponding to the already taxed foreign income. Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) and there's the additional burden of caring for and declaring your income to the US, most expats don't need to be involved with the home country aside from grousing about it and renewing their passport.

patio11 11y ago
Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) Check with your accountant for an authoritative take on the following, but since I happen to be right with a certainty approaching "Gravity exists" I'll write the correction here: There exist two tests by which you can qualify for the Foreign Earned Income Exemption. One is the physical presence test, which is automatically ruled in your favor (i.e. you are ruled to be a foreign resident) if you spend less than 30 days in a tax year physically in the US. The other is the Bona Fide Residence test, which is less of a deterministic question than physical residence. There's no limit to the amount of time you spend in the US every year as long as you meet the IRS examining officer's impression of someone who "clearly lives in a foreign country continuously for an indefinite period." I've had years with upwards of 100 days in the US, and never had any problem with claiming Bona Fide Residence in Japan. As my accountant phrased it once: "If you've got only one refrigerator, and it's on, and it isn't in the US, then you're certainly BFR abroad." For more on this scintillating topic: https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Bona-Fide-Residence-Test https://www.irs.gov/Individuals/International-Taxpayers/Fore...
- masklinn 11y ago
  Thanks, I'd checked the IRS website a long time ago but I guess I missed the BFR, or assumed you had to fit both rather than either, I only remembered the physical presence test (which you can easily breach if you work in pretty much any EU country, if you spend all your PTO/vacation time back in the US)

onion2k 11y ago

It makes American labor less competitive That's the point. It means skilled American workers are less likely to work elsewhere, thus increasing the competitiveness of America by restricting the supply of skilled workers for the rest of the world. It might suck for individuals but as national policy it makes a lot of sense. Plus it raises more tax.

morgante 11y ago
Most expats I know end up sending substantial sums back to the US, either directly or indirectly by moving back their and spending their accumulated savings.

michaelt 11y ago

It really doesn't make sense how the US is the only country which insists on taxing their citizens, no matter where they live. Brit here and I disagree - the American system seems a lot fairer. Taxing on residency rather than citizenship creates a bizarre system where if you're a millionaire you can enjoy all the benefits of being a British citizen, but you can be "domiciled abroad" in Belize, Seychelles, Monaco, or other tax havens. Then you can be British enough to donate millions to a political party, receive a knighthood - but pay far less tax than a middle class office worker. If you want to be taxed like a citizen of Seychelles, it makes sense to me that you'd be a citizen of the Seychelles and not any other country.

mike_hearn 11y ago
I'm also British. The American system is insane and catastrophically unfair, which is why you keep seeing news stories about how horrible it is. The British "non dom" system is unique to the UK and is not any particular feature of residency based taxation (which is how every country in the world works save America and Eritrea). And there are constant rumblings about abolishing it or reforming it. I suspect non-dom status will eventually go away, but residency based taxation will stay. At any rate, no country other than America has any chance of implementing such a policy. To make FATCA work required one of the most draconian laws that's ever come out of a democracy. Most people don't understand it at all. The law says that every financial institution in the world must obey the USA. This is enforced by not only taxing US assets, but because many institutions don't have any US assets, forcing those that do to recursively apply penalties to all their trading partners who aren't in compliance. A big part of the cost of FATCA isn't even reporting Americans to the IRS. It's keeping track of every firm you trade with and whether THEY are reporting their customers to the IRS ...... and then violating your contracts with them by withholding payments until they fall into line. I see a lot of people saying things like, well, the threshold is high enough that all I have to do is paperwork. Or "it doesn't seem so bad really". I find this to be naive. Here's what can easily happen next: • The threshold is lowered. As expats have no meaningful representation or organisation as a group, taxing them is effectively free money. • The FATCA recursive enforcement infrastructure is extended to mandate global compliance with other US laws, by making banks impose penalties on any company or person that Congress doesn't like. People get upset as they suddenly realise that US law now takes precedence over their local laws. FATCA is literally a totalitarian takeover of the entire global financial system by America. They don't care if people have to violate local laws in order to obey. The view of Congress is that American law supercedes all local law. It's the formal establishment of a global American empire.

deleted 11y ago

[deleted]