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Americans, How to Renounce Citizenship and Get a Second Passport
Many Americans (and not only) are opting to get a second passport by investment in one of the jurisdictions that offer these programs. The are a number of reasons for this that are beyond the scope of this article, but, in general, people looking for second passports are searching for a higher level of freedom and better opportunities for their future from a financial and professional perspective.
“America, love it or leave it”. This was the slogan used during the protests against the Vietnam War in the 60`s. In those times, American society was clearly divided into two sectors and this slogan reflected a general feeling of the population in which either they supported their country (and by country, I mean government in this case) 100% or they could go and live elsewhere.
This call for a blind loyalty or a total renouncement is now being also reflected in our days, enhanced by the general political turmoil in the country and by the coronavirus crisis. Many Americans are tired of their tax department, which demands very complicated returns with the risk of going to jail should you make a mistake or fail to declare something. For this reason, many Americans are obliged to find (and pay for) a tax expert to help them through this immense and tiresome task.
Moreover, Uncle`s Sam Kafkian tax policies do not end in the border of the country, but reaches out far beyond, taxing Americans for their worldwide income, even if they live abroad. That is why, even if an American applies for a citizenship by investment program and lives in his new home country, he will still have to go through the complicated tax return each year for all and absolutely all his assets, dividends, income, earnings, and so on. Even those who have not set foot in the US are bound to pay tax.
They are called accidental Americans and they are the people who were born from American parents abroad but never actually visited the country. As crazy as it may sound, they will have to pay taxes to Uncle Sam even if they`ve never even been to the United States. For these reasons, some Americans feel that their tax system is too overwhelming and choose to leave it. But how? The truth is that acquiring citizenship by investment will allow them to live in a different country legally but won`t exempt them from paying tax in the USA. The only choice, in this case, is renouncing citizenship.
If you choose this path, there are a few things to consider. Firstly, the process is not for free. There is a mandatory fee of $2,350 and guess what, you have to pay taxes. After acquiring your second passport by investment, then you can renounce your US citizenship. The IRS will carefully review your case and will impose a tax on the gain of your assets, even if nothing is being sold.
The tax (that can be as high as 23,8%) is levied as if you were selling all of your assets the day of renunciation. For this reason, our experts recommend that you plan your repatriation very carefully in advance. If you are planning to acquire assets abroad or invest in international vehicles, it is better if you do it after renouncing your citizenship, so that the returns from these are truly free of US tax (they will be, of course, subject to the tax laws of your new nation or place of residency, depending on how you structure it).
There are three conditions under which a person will be subject to tax upon renunciation of the US citizenship.
- If the value of your worldwide assets is over 2 million, or 4 million for a married couple.
- If your annual net income tax for the 5 years before the date of renunciation is higher than a specific number which varies according to inflation. For example, it was 168,000 in 2019 (this is not the taxable income but the tax liability).
- If you fail to prove that you have properly complied with the US tax obligations for the past 5 years before the renunciation date.
As you can see, it is important to duly plan the renouncing of your US citizenship and it is better to do it with the help of a tax expert. I have consulted with Mundo experts and can write a few examples of tax planning possibilities. However, this is merely informative and does not constitute official tax advice.
If we are talking about a couple, they can reduce their net worth below 2 million by donating to each other and thus take advantage of the marital deduction for gift taxation, but this may mean that you have to make transfers a few months or even years before the expatriation date. This strategy will of course only work if both husband and wife are American. Another possibility for a couple is filling separate tax returns for several years.
However, even with the correct planning, it is still possible that your repatriation process will be taxed, but you will be shielded from tax on the first $725,000 of gain. The exit tax can be deferred in some cases, and on some specific assets. This means that you will have to pay the taxes when taking the dividends form the investment or the gains from selling the property, but you will no longer be a citizen when you pay this tax and will be subject to pay a 30% rate, with no possibilities of benefiting from double taxation treaties.
Where to go?
Luckily, even with the increasing regulations, there are still very interesting countries where to get a second passport by investment. One of the best second citizenship by investment programs can be found in Montenegro. This is one of the most affordable passports in Europe, but it has the disadvantage that is not an EU member yet. However, the country is in the process of becoming a member and the process is very likely to be successful. If you are willing to wait, you may become an EU citizen within a few years thanks to your Montenegrin passport.
We strongly recommend applying for this citizenship by investment program for two reasons. Firstly, the application is limited, there is a limited quote for 2000 applicants and the program closes in December 2021. Secondly, other major passport programs in Europe are Cyprus, that has been recently cancelled and Malta, which has recently changed its requirements and we still need to fully comprehend the new details.
Montenegro advantages: Tax optimization and opportunities
Having a second citizenship by investment in Montenegro is highly recommended. Montenegro is one of the last low-tax jurisdictions in Europe for those Americans who are willing to start their new lives away from the US. Montenegro has one of the lowest tax regimes in Europe. The personal income tax is only 9-11% and capital gains tax 9%.
There are also some tax exemptions such as tax on inheritance and gifts, and payment from life and property insurance. For a citizen by investment and particularly for former Americans this is an incredible jurisdiction where to optimize taxes and grow your assets and or your business. For investors and businesspeople, for example, Montenegro offers a low corporate tax of only 9% and an attractive VAT of 7 to 17%.
Is Montenegro a good place for investment? Absolutely. Indeed, the country is considered to be the last European El Dorado for tourism investments. Montenegro is one of the fastest growing and most dynamic touristic destinations with over two million visitors in 2018 and constantly increasing. Moreover, many nationalities which would otherwise need a Schengen visa, can travel here visa free, thus increasing the number of tourists that the country receives. Many Russians, for example, choose to spend their holidays in this beautiful country where they are not required to get a visa to enter. Imagine the ROI that you can have from a vacationing renting property.
How to apply?
All applicants should prove having a lawful source of funds for the investment made and fees paid, and they cannot be sanctioned in the EU, USA, the UK or Canada. The ideal applicant must have a clean police record and a good credit history and be in good health. In order to acquire the Montenegrin second passport by investment, the applicant will be required to make a donation to the government’s funds and purchase government approved real estate, having two different options:
- Donation + acquiring real estate projects in the northern region of the country.
- Donation + acquiring real estate projects in the southern region or the capital.
Click here for more information on the minimum required investments.
One of the good things about this program is that it allows for the individual to rent the property, thus obtaining not only a second passport but also a return on the investment and the property can be sold after five years. With the high number of tourists visiting Montenegro each year, you can imagine how profitable an investment this may be.
If you have any doubts or want more information on the Montenegrin program, you are welcome to read our interview with our expert.
In conclusion, Montenegro presents a remarkable opportunity not only for Americans but for citizens from all over the world, especially from highly regulated countries that may cause difficulties when growing your business internationally. If you want to become a citizen by investment, contact our expert and apply for a Montenegrin second passport by investment today.
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