The United States taxes its citizens on their worldwide income regardless of where they reside. Each quarter, the United States publishes the names of each individual who have given up their United States citizenship and/or US green cards on a list published by the US Treasury Department in its Federal Register (available at http://federalregister.gov/a/2015-02850).
Former U.S. citizen
You are considered to have relinquished your U.S. citizenship on the earliest of the date you renounced U.S. citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a “certificate of loss of nationality”).
Former long-term resident
You are considered to have terminated your long-term residency on the earliest of the date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security “Form I-407” with a U.S. consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status.
Expatriation Tax Return (Form 8854 Filing Requirement)
In every case, if you expatriated or terminated your U.S. residency, or you are subject to the expatriation rules you must file Initial Form 8854 and if applicable annual form 8854 in accordance with the form instructions. The initial Form 8854 is also used for certain other purposes such waiving treaty benefits for eligible deferred compensation items. Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms.
Planning Makes the Difference
The “exit tax” on high net worth and high-income taxpayers can make it prohibitive for certain individuals to expatriate. But with proper planning and structuring, often this tax can be mitigated or avoided altogether. Even simple pre-expatriation gifting can make a seven figure difference in taxes due.
For further guidance on Relocations and Second Citizenship, Planning and Structuring please feel free to contact us.