I recently read a very interesting article in the Philippine Star newspaper regarding United States taxation policies in regard to Americans who live overseas (particularly those in Asia) and what happens if they become naturalized in the country where they reside.
More and more Americans living outside the United States are renouncing their US citizenship on account of increasing tax obligations and stringent reporting requirements mandated by the Internal Revenue Service (IRS). Called the new Foreign Account Tax Compliance Act or FATCA, this requirement by the “taxman” is seen as a move to narrow down the enormous budget deficit faced by the US, with an estimated $165 billion worth of additional tax payments from overseas Americans over the next decade.
American expats living in Asia are specially coming under close inspection, with their Asian bank accounts being targeted and criminal investigations being intensified since there are suspicions that a lot of overseas companies were set up specifically to avoid payment of US taxes. According to the IRS, those who fail to report foreign bank accounts face a “non willful” penalty of up to $10,000. Foreign banks are also forced to report to the IRS the account information of US citizens with over $50,000 in savings – prompting foreign banks and financial institutions to refuse service due to the additional complications and expenses in serving American clients.
Several years ago, US citizens who have not been filing taxes were allowed to come up with an agreement with the IRS where they are only required to pay three years of back taxes plus interest. Under the new voluntary disclosure program by the IRS, “delinquent” taxpayers must pay eight years of back taxes and interest, with as much as 25 percent additional penalty on the individual’s highest account balance during that same period. This happened to a Fil-Am who voluntarily disclosed $300,000 life savings in an offshore bank with taxes and penalties amounting to $150 – but the American citizen had to shell out $60,000 as penalty for the highest amount in the unreported bank account – something which ordinary Americans who have saved up painstakingly consider abusive and onerous.
To read the rest of the article, click here.
Now, to become a naturalized citizen in the Philippines you are required to renounce your citizenship in whatever country in which you were a citizen. If you properly renounce your US Citizenship, which is not an easy thing to do, you should no longer be liable for US Income Taxes in the future. But, the key is to properly renounce your US Citizenship, which as I said is not easy to do. If you want to renounce your US Citizenship, I recommend that you consult an attorney to make sure that you cover all of the bases.
Hi Bob – Renouncing US citizenship is a difficult process from a tax standpoint, as well as “official” procedure-wise. There is a lengthy and intense tax form that those renouncing citizenship must file. Additionally, there is a ten year window through which the IRS may peer and examine your compliance.
It doesn’t stop there, either. As a nonresident alien, you will be subject to 35% withholding for taxes on any US-sourced income such as interest and dividends received from a US source. That high withholding rate is meant to encourage a nonresident alien to file a 1040NR tax return to get whatever refund may be available.
So, the IRS’ reach is long and persistent. Professional assistance is the salve to relieve the sting!
Thanks, Paul, for offering your expertise for our readers.
What is the benefit of having such a large amount – $300,000 – in an off-shore account as opposed to having it in the U.S. and withdrawing cash as necessary? It sounds like that this was that person’s savings as opposed to money that he had earned in a given year.
Probably I don’t understand the issues enough. 🙂
I’m like you on that issue, Tom.. I don’t really understand what they mean, or why the $300k was kept in such an offshore account.
The article makes no sense and if you haven’t paid taxes for 10 years and all they took was 60k be happy your not in prison.
I can wire $10,500.00 a month from an account at Wellsfargo here in US of A a month limit to an account in the Philippines set up with one of their sister banks there. There is a list if you visit website. As long as that money has taxes paid on it then I only owe 20% or capital gains taxes on interest earned on those investments oversees. Now if you are working and making a salary those laws are different and I have no idea but it seems the tax rates are so high that a record number of Americans renounced citizenship who were working oversees to avoid these penalties the last 2 years 2010-2012.
As far as keeping money in offshore accounts ask google, apple, and all other fortune 500 companies why because lower tax rates and they get to keep more considering America has the highest corporate tax rate in the world 36%.DISCLAIMER NOT A CPA OR AN ATTORNEY SEEK YOUR OWN LEGAL ADVICE. These are a few of the things I have found out while preparing to move oversees.
Hey Bob, you are providing a much needed service, great site! Brad, just make sure you are declaring those foreign bank accounts every year since 2003 by filing your FBAR by June 30 if the sum of the balance maximums of your foreign accounts is more that US$10K in the previous year. Good thing if you have been doing that. If you haven’t been doing that (and most expats haven’t), no way to recover, and sorry to say you are in deep s**t. Get ready for a shock as you discover how the USA is increasingly criminalizing foreign bank accounts. Did you check the “I have a foreign bank account” box on Schedule “B”? No? Oh my! Philippine citizenship (including formally renouncing US citizenship, however difficult if may be) is, quite frankly, sounding better and better.
Here’s a good article on Forbes with summarizes the disturbing situation nicely:
http://www.forbes.com/sites/robertwood/2012/06/04/fbar-penalties-when-will-irs-let-you-off-with-a-warning/
I think the main reason people are moving their money out of the U.S is because they fear a collapse of the dollar and even the American economy. Obama and co. seem to be doing their best to destroy both the free market and the dollar.
Possibly, Dennis. People have lots of reasons for making such a move, but that could be one of them.
Get a safe, have it set in concrete, keep your money there. Better a Filipino breaking into the safe and stealing it from me than the IRS stealing it. At least an average thief would do something better with the money then an Obama henchman could even imagine..
Bob, I was standing on the immigration line and I was looking at the Philipino line, and come to think of it, I have NEVER seen a foreigner on this line EVER. Now I understand that to take Philipino citizenship, one needs to give up former citizenship. But it is hard to believe that no one has decided to do this, considering the large numbers of foreigners here.
Consider the other possibility, which is that the law SAYS that you can be granted Philipino citizenship, but even if you are fully qualified, when you try to do it, you cannot. This is the case in Thailand. The law does allow for citizenship, but NO ONE has been able to get it in the past 8 years. All applications are on indefinite hold.
Do you know of anyone that has tried to get Philipino citizenship and succeeded? Anyone have any success stories?
Hi Peter – I know two foreigners, an American and an Austrian, who have become Philippine Citizens in the past few years. I know another who is scheduled for his court hearing in a few months. There are people who do it, but it is rare. There is nothing holding anybody back, just few takers.
Ok thanks for the info, good to know. I believe you will see more and more expats choosing this option as these new tax laws in the US force painful decisions about one’s citizenship. Here is another excellent article from Wall Street Journal:
How to Lose Friends, Citizens and Influence
http://m.us.wsj.com/articles/a/SB10001424127887323848804578607472987119796?mg=reno64-wsj
Hi bob,I just want to know if I could get a philippine passport for my bangladeshi husband?how long will it takes to have it?thank you.God bles you more.
Hi bob,I just want to know if I could get a philippine passport for my bangladeshi husband.how long will it takes?thank you so much.God bless you more bob!
If your husband is a citizen of Bangladesh he does not qualify for a Philippine passport.
Am an American married to a filipina and live here in Lapu Lapu part of Cebu Province since last December. Have gotten my I card but how do I become a citizen of the Philippines?
Hi Warren – Thank you for visiting my site! Since you have lived here only since last December, you do not qualify yet to become a Philippine Citizen.
1. Because you have a Filipina wife, you can apply for Philippine Citizenship once you have lived here permanently for a minimum of 5 years. For those who don’t have a Filipino spouse, they must live here for 10 years before applying.
2. In order to become a citizen you will need to be able to speak and write one of the Philippine languages. Since you live in Cebu, it would be best for you, probably, to learn Cebuano.
3. There are other requirements too, but these are the major steps.
4. Under Philippine law, you will be required to renounce your US Citizenship in order to become a citizen of the Philippines. Yes, there are ways around this, but it is a requirement of the law here.
Good luck to you, Warren, and I hope you are enjoying your life in the Philippines.
Just to let you know, the official price for renouncing US citizenship is set to EXPLODE on Sept 12, 2014 from US$450 to an astonishing US$2,350. The official announcement is here:
http://www.state.gov/r/pa/prs/ps/2014/231128.htm
You better move fast.
Yes, I saw that on the news a few days ago, Peter.
It seems strange to me that anyone would want to give up their US citizenship. So many foreigners obtain US citizenship every year.
Rusty
It is a highly personal choice, a decision that only the person involved can make. I would love to become a Philippine citizen, but am not ready to renounce my US citizenship, although I have considered it. I don’t expect that I will ever return there. Just as my grandparents gave up their Irish citizenship when they immigrated to the USA, why would I not consider following their path now that I have immigrated to the Philippines?
While you are busy worrying about the US’s IRS tax rules, before you change your citizenship to Philippine, do a little research on the Philippine tax laws that you would encounter under the Philippine BIR ( Bureau of Internal Revenue ). I suggest that you will find a whole bunch of more complications.
Taxes are not an issue that are of concern. I wrote the article as an informative piece, not about my own personal considerations.
Bob, I want to move to move to kidapawan. I need help fining property to buy and put it under my gf’s name which she lives outside there. I then need dual citizenship for US and Philippines. Is it doable?
Hi Jeff. If you are a former Philippine citizen you can easily become a dual citizen. If you have never been a citizen if the Philippines then you are not eligible for dual citizenship.