Hundreds give up US citizenship after new tax rules start

WASHINGTON — The number of Americans renouncing United States citizenship has increased 39 per cent in the three months through September, after rules that make it harder to hide assets from the tax authorities came into force.

People giving up their nationality at US embassies increased to 776 in the third quarter, from 560 in the year-earlier period, Federal Register data published on Saturday showed.

Tougher asset-disclosure rules that started on July 1 under the Foreign Account Tax Compliance Act, or FATCA, prompted more of the estimated six million Americans living overseas to give up their passports. The appeal of US citizenship for expatriates faded further as more than 100 Swiss banks began to turn over data on American clients to avoid prosecution for helping tax evaders.

The US, the only Organisation for Economic Co-operation and Development nation that taxes citizens wherever they reside, stepped up the search for tax evaders after UBS paid a US$780 million (S$995 million) penalty in 2009 and handed over data on about 4,700 accounts. Shunned by Swiss and German banks and with FATCA starting, more than 9,000 Americans living overseas gave up their passports over the past five years.

FATCA requires US financial institutions to impose a 30 per cent withholding tax on payments made to foreign banks that do not agree to identify and provide information on US account holders. It allows the US to scoop up data from more than 77,000 institutions and 80 governments about its citizens’ overseas financial activities.

In establishing the 2010 FATCA law, Congress and President Barack Obama, in effect, threatened to cut off banks and other companies from easy access to the US market if they did not pass along such information. It was projected to generate US$8.7 billion over 10 years, said the congressional Joint Committee on Taxation.

So far, 2,353 Americans have renounced their citizenship this year, close to the all-time high of 2,369 in the first nine months last year. BLOOMBERG