By Alexander Marino JD, LLM (US Tax) and

Kevin Kirkpatrick JD, MBA

US citizenship or permanent resident status allows access to the largest economy in the world. So why would an American citizen or a person with a US “green card” living in Saudi Arabia ever consider giving up their US status? Increasingly, the answer is one word: tax.

The United States taxes the worldwide income of its citizens and green card holders no matter where they live. It’s possible for a person who has never been to the United States to be subject to annual US income tax and information-reporting obligations, and hefty monetary penalties for noncompliance. For example, many children born abroad to US parents are automatically US citizens, and they must file US tax returns if they earn income or have non-US bank accounts.

Swearing allegiance to another country by itself does not end US citizenship. Similarly, a green card must be formally relinquished for both tax and immigration purposes; simply giving the card to a US Customs official or waiting for it to expire is not sufficient to terminate US tax status.

For residents of Gulf Cooperation Council states—where there is no personal income tax and no credit to be claimed for non-US taxes paid—US status can mean a large tax bill. Additionally, no GCC states allow dual citizenship, so often US individuals living in the Gulf region must choose between US citizenship and citizenship in their country of residence.

None of this is new, but what is novel is increased and more sophisticated enforcement. The US Foreign Account Tax Compliance Act (FATCA) mandates international information-sharing on US individuals with non-US bank accounts. All GCC states except Oman currently participate in FATCA information exchanges with the US Internal Revenue Service (IRS). US individuals living in Riyadh, for example, may be facing sleepless nights in anticipation of a notice from the IRS asking why they have not filed tax returns.

The solution to this predicament often comes in the form of renouncing US citizenship or turning in one’s green card. But doing so carries serious consequences, including tax and immigration traps. Any resident considering renunciation must decide if it is the right choice and then get competent advice before going through the process.

In the end, renouncing US citizenship requires careful consideration.

On Nov.16, 2018, Moodys Gartner Tax Law will present a complimentary webinar on the main topics of interest concerning the renunciation of US citizenships. If you are curious to learn more or are already considering the renunciation of your US citizenship, attending this webinar is critical to making an informed decision.