Section 349(a)(5) of the Immigration and Nationality Act details a U.S. citizen’s right to renounce his or her citizenship by “voluntarily making a formal renunciation of his or her nationality before a diplomatic or consular officer of the United States in a foreign state, in this form.” as prescribed by the Secretary of State,” and signing an oath of renunciation.

The government maintains a federal registry of people who have renounced their citizenship. In the report published in October 2023, the list of names stretched over 12 pages. The report published in October 2024 has since more than doubled, spanning 30 pages. Why would anyone renounce their US citizenship?

The process and impact of expatriation

Renouncing citizenship has serious consequences. You waive various rights, including:

• The right to vote in American elections
• Government protection
• Assistance when traveling abroad
• Citizenship for children born abroad
• Access to federal jobs
• Unrestricted travel into and out of the United States

Waiver is a lengthy legal process that involves paperwork, interviews and money. Due to the increase in the number of U.S. citizens requesting waivers, the U.S. State Department increased the waiver fee from $450 to $2,350, approximately five times more than the average cost in other countries to high income like the UK. Additionally, some high-income citizens may owe a type of capital gains tax called an “exit tax” (officially called capital gains tax). expatriation tax).

It is important to note that renouncing U.S. citizenship is almost always irreversible. Once you renounce, you cannot easily regain your citizenship. Despite these consequences (and others), more and more people are choosing to renounce their U.S. citizenship. Here’s why.

Why so many renunciations?

Although the reasons for giving up citizenship vary from person to person, the recent increase in this number is mainly due to new tax laws, including the Foreign Account Tax Compliance Act (FATCA) of 2010. According to the Internal Revenue Service (IRS), FATCA is “an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. »

FATCA requires reporting on the following:

• U.S. taxpayers on their overseas financial accounts and off assets
• Foreign financial institutions regarding financial accounts held by U.S. taxpayers
• Foreign entities in which U.S. taxpayers have a substantial ownership interest

Under FATCA, certain U.S. taxpayers with financial assets outside the United States that total above the reporting threshold must report their assets to the IRS using Form 8938, Statement of Specified Foreign Financial Assets (the threshold). varies depending on your filing status and whether you live in the United States or abroad).

The IRS warns that there are “hefty penalties for failure to report these financial assets.” It should be noted that the The FATCA requirements are in addition to Form 114, Report of Foreign Bank and Financial Accounts (FBAR), which is the long-standing requirement for reporting foreign financial accounts. The penalties for non-compliance are significant and sometimes involve criminal liability.

The American tax system and its global impact

Unlike most countries, the United States taxes its citizens on worldwide income, meaning that American citizens are taxed on their income no matter where in the world they live. While foreign tax credits can alleviate this burden, they do not eliminate double taxationespecially for high earners who must file and pay taxes both in the United States and in their country of residence.

The complexity and cost of complying with these tax laws can be overwhelming, prompting some Americans to renounce their citizenship to escape these obligations. Additionally, FATCA has made it more difficult for U.S. citizens living abroad to access banking services. A lot foreign banks are now refusing to open accounts for Americans due to reporting requirements, causing frustration among those living abroad.

Rise of nomadic lifestyles

The global pandemic has accelerated the trend digital nomadism—the lifestyle of working remotely while constantly traveling and residing in different countries. According to MBO Partners, the population of digital nomads in the United States increased by almost 50% between 2019 and 2020.

This lifestyle can make it more difficult to navigate the bureaucratic and legal complexities of holding U.S. citizenship. Some digital nomads renounce their citizenship in order to avoid residency requirements in certain countries, which might otherwise force them to choose one nationality over another.

Although these statistics do not indicate who is leaving the United States for this type of lifestyle, they support the idea that the adoption of a nomadic lifestyle is on the rise and may perpetuate the shift away from American citizenship.

Dual nationality

Dual nationality can create conflicts, for example when the legal systems of two countries require conflicting legal obligations. This may be due to military service obligations, taxes, or legal policies. For some people, renouncing U.S. citizenship is a practical way to resolve these loyalty conflicts and simplify their lives.

In 2023, the United States naturalized 878,500 new citizens. Many of these people could have retained dual nationality with their country of origin. Over time, some may choose to forgo one nationality in favor of another, particularly if they find the U.S. tax system or bureaucratic complexities too burdensome.

Other grounds for waiver

While tax laws and dual citizenship are the main factors behind renunciation of U.S. citizenship, there are other, more personal reasons. Historically, some Americans have renounced their citizenship due to opposition to U.S. government policies, such as during the Vietnam War.

Certain actions can also result in loss of U.S. citizenship without formally renouncing it. Under the Tax Code and the Immigration and Nationality Act (found in Title 8 of the United States Code), citizenship can be terminated (and therefore abandonednot waived) for several reasons, including:

• Apply for and become a naturalized citizen of another country (except dual nationality)
• Pledge allegiance to another country
• Join the armed forces of another country engaged in a war against the United States or join the armed forces of another country as an officer
• Working for a foreign government while being a citizen of that country
• Accepting employment by a foreign government in a job where an oath of allegiance, affirmation, or other formal declaration of allegiance is required
• Renouncing U.S. citizenship during wartime, with approval of the U.S. Attorney General
• Committing an act of treason or attempting to overthrow the U.S. government by force (and being found guilty by a court martial or civil court)

The essentials

Today, tax laws are leading to record numbers of people renouncing their U.S. citizenship each year. However, it’s not as simple as putting your passport through the shredder. Because the law states that those who wish to renounce their U.S. citizenship must do so in person before a U.S. consular or diplomatic officer while in a foreign country, U.S. citizens cannot renounce their citizenship by mail, via A third partyor during your stay in the United States.

Renunciation has important consequences. In addition to renouncing benefits afforded to U.S. citizens, the U.S. Department of State advises anyone considering renouncing their U.S. citizenship to understand that this act is irrevocable in almost all cases. Renouncing your citizenship is one of the most solemn decisions anyone can make. Carefully weigh the pros and cons for you and your family. It is also recommended to consult an experienced tax professional to understand the tax consequences of the waiver.