Expatriation Tax
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An expatriation tax or emigration tax is a
tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
on persons who cease to be tax-resident in a country. This often takes the form of a capital gains tax against unrealised gain attributable to the period in which the taxpayer was a tax resident of the country in question. In most cases, expatriation tax is assessed upon change of domicile or habitual residence; in the United States, which is one of only three countries (Eritrea and Myanmar are the others) to substantively tax its overseas citizens, the tax is applied upon relinquishment of American citizenship, on top of all taxes previously paid. Australia has "Deemed disposal tax" which in essence is exit tax.


Australia

"Deemed disposal" occurs when someone stops being an Australian resident. For tax purposes, they are deemed to have disposed of assets that are not taxable Australian property for their market value.


Canada

Canada Canada is a country in North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, making it the world's List of coun ...
imposes a "departure tax" on those who cease to be tax-resident in Canada. The departure tax is a tax on the capital gains which would have arisen if the emigrant had sold assets after leaving Canada ("deemed disposition"), subject to exceptions. However, in Canada, unlike the U.S., the capital gain is generally based on the difference between the market value on the date of arrival in Canada (or later acquisition) and the market value on the date of departure.


Eritrea

Eritrea Eritrea, officially the State of Eritrea, is a country in the Horn of Africa region of East Africa, with its capital and largest city being Asmara. It is bordered by Ethiopia in the Eritrea–Ethiopia border, south, Sudan in the west, and Dj ...
charges a 2% tax on income to all Eritreans who live outside Eritrea. This measure has been criticized by the Dutch government, which expelled a top Eritrean diplomat because of it.


France

According to the law ''"L'impôt sur les plus-values latentes en cas de transfert du domicile fiscal hors de France" Article 167 bis Code général des impôts'' there is a rule forcing french tax-subjects to pay a tax if they move abroad to certain countries and not return promptly. France's exit tax applies to individuals who have been tax residents in France for at least 6 of the last 10 years before their departure and have ownership of more than €800,000 worth of shares or other financial instruments, or are holding more than 50% of the shares in a company. A deferral of payment is possible if the person relocates to an EU/EEA country or a country with a tax treaty with France that includes administrative assistance. If the individual retains the assets for a certain period (usually 15 years) or returns to France to become a tax subject, the tax may be canceled.


Germany

In December 1931, the ''Reich'' Flight Tax was implemented as part of a larger emergency decree with the goal of stemming capital flight during the unstable
interwar period In the history of the 20th century, the interwar period, also known as the interbellum (), lasted from 11 November 1918 to 1 September 1939 (20 years, 9 months, 21 days) – from the end of World War I (WWI) to the beginning of World War II ( ...
. After the Nazis seized power in 1933, the Nazi government largely used the tax to confiscate assets from persecuted people (mostly Jews) who sought to flee
Nazi Germany Nazi Germany, officially known as the German Reich and later the Greater German Reich, was the German Reich, German state between 1933 and 1945, when Adolf Hitler and the Nazi Party controlled the country, transforming it into a Totalit ...
. Today, when moving out of
Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen States of Germany, constituent states have a total popu ...
company shares (ownerships of >1%) will be ''virtually sold'' and capital gain taxed based on the current value.


Netherlands

The
Netherlands , Terminology of the Low Countries, informally Holland, is a country in Northwestern Europe, with Caribbean Netherlands, overseas territories in the Caribbean. It is the largest of the four constituent countries of the Kingdom of the Nether ...
has treaties with
Belgium Belgium, officially the Kingdom of Belgium, is a country in Northwestern Europe. Situated in a coastal lowland region known as the Low Countries, it is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeas ...
and
Portugal Portugal, officially the Portuguese Republic, is a country on the Iberian Peninsula in Southwestern Europe. Featuring Cabo da Roca, the westernmost point in continental Europe, Portugal borders Spain to its north and east, with which it share ...
permitting them to charge emigration tax against
Dutch people The Dutch, or Netherlanders (Dutch language, Dutch: ) are an ethnic group native to the Netherlands. They share a common ancestry and culture and speak the Dutch language. Dutch people and their descendants are found in migrant communities wor ...
who move to those countries. The aim is to impose a tax on persons who move abroad and cash out on the tax-free appreciation of their Dutch pensions. However, in 2009, the
Supreme Court of the Netherlands The Supreme Court of the Netherlands ( or simply ''Hoge Raad''), officially the High Council of the Netherlands, is the final court of appeal in civil, criminal and tax cases in the Netherlands, including Curaçao, Sint Maarten and Aruba. Th ...
ruled that the Tax and Customs Administration could not impose an emigration tax on a Dutch man who moved to France in 2001.


Norway

Norway Norway, officially the Kingdom of Norway, is a Nordic countries, Nordic country located on the Scandinavian Peninsula in Northern Europe. The remote Arctic island of Jan Mayen and the archipelago of Svalbard also form part of the Kingdom of ...
imposes an emigration tax on unrealised capital gains as it appears on the day of departure if the unrealised gains exceeds 500,000 NOK. The tax may be deferred without collateral if the subject takes residence in another EEA member state, and with collateral otherwise. If the taxed gain is not realised within a five-year period, it will be assumed that the emigration was not motivated by tax purposes and the tax will be dismissed or refunded.


South Africa

The current South African exit tax regime works in concert with South Africa's foreign exchange controls. A person who is a resident of
South Africa South Africa, officially the Republic of South Africa (RSA), is the Southern Africa, southernmost country in Africa. Its Provinces of South Africa, nine provinces are bounded to the south by of coastline that stretches along the Atlantic O ...
as defined under the exchange control laws (someone who is resident or domiciled in South Africa) may change status to become an emigrant, if the person is leaving the
Common Monetary Area The Common Monetary Area (CMA) links South Africa, Namibia, Lesotho and Eswatini into a currency union, monetary union. The Southern African Customs Union (SACU) includes all CMA members in addition to Botswana, which replaced the South African ran ...
(South Africa,
Namibia Namibia, officially the Republic of Namibia, is a country on the west coast of Southern Africa. Its borders include the Atlantic Ocean to the west, Angola and Zambia to the north, Botswana to the east and South Africa to the south; in the no ...
, Swaziland, and
Lesotho Lesotho, formally the Kingdom of Lesotho and formerly known as Basutoland, is a landlocked country in Southern Africa. Entirely surrounded by South Africa, it is the largest of only three sovereign enclave and exclave, enclaves in the world, t ...
) to take up permanent residence in another country. A single emigrant may expatriate up to R4 million of assets without exit charge, while a family is entitled to twice that amount. The emigrant must declare all worldwide assets to an Authorised Dealer of the South African Reserve Bank, and obtain a tax clearance certificate from the South African Revenue Service.


Spain

In December 2014, a new 'Exit Tax' was announced which is governed by Article 95 of the Income Tax Act. This applies to departing Spanish resident taxpayers with shares worth more than four million euros or one million if they hold a stake of 25% of a single business and then transfer their habitual residence outside Spain if they have previously lived in Spain 10 of the last 15 years.


United States

Unlike all other countries with the exceptions of Eritrea and
Hungary Hungary is a landlocked country in Central Europe. Spanning much of the Pannonian Basin, Carpathian Basin, it is bordered by Slovakia to the north, Ukraine to the northeast, Romania to the east and southeast, Serbia to the south, Croatia and ...
(with caveats), the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
taxes its citizens on worldwide income, even if they are a permanent resident in another country. To deter tax avoidance by abandonment of citizenship, the United States imposes an expatriation tax on high-net-worth and high-income individuals who give up U.S. citizenship. The tax also applies to lawful permanent residents or green-card holders who are considered "long-term residents." The
Internal Revenue Code The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code. The IRC is organized topically into subtitles and sections, co ...
defines a long-term resident as any individual who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the expatriation occurs. The first U.S. income tax to include U.S. citizens living overseas dates to 1862, but the first law to authorize taxation of former citizens was passed over a century later, in 1966. The 1966 law created Internal Revenue Cod
Section 877
which allowed the U.S.-source income of former citizens to be taxed for up to 10 years following the date of their loss of citizenship. Section 877 was first amended in 1996, at a time when the issue of renunciation of U.S. citizenship for tax purposes was receiving a great deal of public attention; the same attention resulted in the passage of the Reed Amendment, which attempted to prevent former U.S. citizens who renounced citizenship to avoid taxation from obtaining visas, but which was never enforced. The American Jobs Creation Act of 2004 amended Section 877 again. Under the new law, any individual who had a net worth of $2 million or an average
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
liability of $124,000 for the five previous years (adjusted annually for inflation) who renounces his or her citizenship is automatically assumed to have done so for
tax avoidance Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxe ...
reasons and is subject to additional taxes. Furthermore, with certain exceptions covered expatriates who spend at least 31 days in the United States in any year during the 10-year period following expatriation were subject to US taxation as if they were U.S. citizens or resident aliens. A bill—which failed to advance to the Senate—entitled ''Tax Collection Responsibility Act of 2007'' was introduced during the 110th session of congress in July 2007 by Charles B. Rangel. It contemplated, among others, a revision of the taxation of former American citizens whose citizenship officially ends. In particular, all property of an expatriate up to certain exceptions would be treated as having been sold on the day before the expatriation for its fair market value with any gain exceeding $600,000 classified as taxable income. The HEART Act, passed on 17 June 2008, created the ne
Section 877A
which imposed a substantially different expatriation tax from that of the earlier Section 877. The new expatriation tax law, effective for calendar year 2009, defines "covered expatriates" as expatriates who have a net worth of $2 million, or a 5-year average income tax liability exceeding $139,000, to be adjusted for inflation, or who have not filed an IRS Form 8854 certifying they have complied with all federal tax obligations for the preceding 5 years. Notwithstanding the above, certain dual citizens by birth and certain minors as defined i
Section 877A(g)(1)(B)
are not considered "covered expatriates." Under the new expatriation tax law, "covered expatriates" are treated as if they had liquidated all of their
asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
s on the date prior to their expatriation. Under this provision, the taxpayer's net gain is computed as if he or she had actually liquidated their assets. Net gain is the difference between the fair market value (theoretical selling price) and the taxpayer's cost basis (actual purchase price). Once net gain is calculated, any net gain greater than $600,000 will be taxed as income in that calendar year. The tax applies whether or not an actual sale is made by the taxpayer, and whether or not the notional gains arise on assets in the taxpayer's home country acquired before immigration to the United States. It is irrelevant that the gains may have partly arisen before the taxpayer moved to the U.S. The new tax law also applies to
deferred compensation Deferred compensation is an arrangement in which a portion of an employee's wage is paid out at a later date after which it was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options. The primary ...
(401(a), 403(b) plans,
pension plan A pension (; ) is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be either a "Defined benefit pension pla ...
s,
stock option In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified ...
s, etc.) of the expatriate. Traditional or regular IRAs are defined as specific tax deferred accounts rather than deferred compensation items. If the payer of the deferred compensation is a
US citizen Citizenship of the United States is a citizenship, legal status that entails Americans with specific rights, duties, protections, and benefits in the United States. It serves as a foundation of fundamental rights derived from and protected by ...
and the taxpayer expatriating has waived the right to a lower
withholding Tax withholding, also known as tax retention, pay-as-you-earn tax or tax deduction at source, is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the ...
rate, then the covered expatriate is charged a 30%
withholding tax Tax withholding, also known as tax retention, pay-as-you-earn tax or tax deduction at source, is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the ...
on their deferred compensation. If the covered expatriate does not meet the aforementioned criteria then the deferred compensation is taxed (as income) based on the present value of the deferred compensation. In 2012, in the wake of Eduardo Saverin's renunciation of his citizenship, Sen.
Chuck Schumer Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as the Seniority in the United States Senate, senior United States Senate, United States senator from New York (state), New York, a seat he has held since 1999. ...
(D-NY) proposed the Ex-PATRIOT Act to levy additional taxes upon citizens renouncing their citizenship.


See also

* Departure tax * Diploma tax *
Double taxation Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). Double liability may be mitigated ...


References


External links


IRS Guide to Expatriation Tax

Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 at govtrack.us

US Domestic Options
{{Webarchive, url=https://web.archive.org/web/20191028075322/https://usexpatpensions.com/us-domestic-options/ , date=28 October 2019 Taxation in the United States International taxation Personal taxes Emigration policy