Renouncing US citizenship
An individual who renounces their US citizenship ceases to be a citizen of the United States of America.
If successful, they will receive a Certificate of Loss of Nationality (CLN) and will no longer have the responsibilities of a US citizen and can identify solely as a citizen of their other country of citizenship.
However renouncing US citizenship also means that the individual will cease to have US citizen rights and protection, including that of the US government when overseas.
Renouncing US citizenship is an irrevocable act, a decision you cannot go back on once completed.
It is essential that the full consequences and process are understood prior to deciding whether it is the best option for you. Given the importance of the decision, as well as the costs and delays resulting from issues with your application, it is recommended you seek legal advice prior to beginning the process of renouncing US citizenship.
Reasons to renounce US citizenship
There are a number of reasons why an individual may seek to renounce their US citizenship, both financially motivated and more personal.
In terms of financial motivation, a core reason many US citizens choose to renounce their citizenship is to avoid punitive elements of the US taxation system.
Due to the USA’s citizen-based taxation system, US citizens are taxed whether or not they live and work abroad. As citizens living abroad and earning income abroad will normally have to pay taxes in their country of residence, the US system effectively results in double taxation of their citizens overseas.
A system of foreign tax credits can lower the tax burden for low earners, but high-income earners of US citizenship residing overseas are particularly negatively affected.
In 2010 new tax laws introduced by the US government increased the reporting requirements of US taxpayers living overseas. In particular, the Foreign Account Tax Compliance Act (FACTA) 2010 has increased the focus on reporting the assets of US citizens with assets overseas and is believed to have caused a spike in recent years of renunciation requests. Failure to comply with FACTA regulations can result in hefty fines and legal action by the US government.
Alternative reasons to renounce US citizenship may include a wish to disassociate from US political actions, or to fully benefit from the rights conferred as a national of another country and to fully integrate into that country of residence.
Risks of renouncing US citizenship
There are also a number of limitations and consequences to consider ahead of proceeding with the renunciation process.
Renouncing US citizenship forfeits your rights as a US citizen including:
- The right to vote in US elections
- The right to work in a federal job
- The right to residency in the USA.
- The right to unrestricted travel into and out of the USA
- The right of citizenship for any children born overseas
- US government assistance and protection overseas
In addition to the loss of rights, renouncement of US citizenship may not provide you with the release of financial or other obligations being sought. While eliminating many of their rights, renouncing US citizenship does not release the individual from:
- Persecution for crimes committed in the USA
- Payment of financial obligations previously incurred in the USA or as a US citizen abroad, e.g. child support
- In some cases, military service obligations
- In some cases, US tax obligations (particularly individuals with assets over $2 million)
US citizens considering renouncing their citizenship for these reasons should seek professional advice on their specific circumstances.
In addition the renunciation process can be drawn-out and costly. Given a vast increase in the number of people seeking US citizenship renunciation, the US Department of State increased the cost to $2350. High earning citizens can also be required to pay an exit tax or expatriation tax.
A final risk of renouncing US citizenship is that of becoming stateless. Statelessness means that an individual is not protected by any nations’ government. This has huge implications regarding an individual’s right to live, work and travel anywhere in the world as well as in situations where they may need government assistance or protection.
Unless the applicant is a dual citizen and has a passport for a second country for which they can claim full citizenship after renouncing their US citizenship, their application is likely to be declined. If it is not declined the individual could face the severe consequences of statelessness. It is therefore essential that applicants ensure they have dual citizenship and a passport for their second country prior to beginning the process of US citizenship renouncement.
Process of renouncing US citizenship
Due to the risk of becoming stateless, it is essential that anyone seeking to renounce their US citizenship has a passport from a second country of citizenship which will become their home country in place of the United States.
The next step is to book an appointment at the consulate or embassy, usually in the country you have a passport for and intend to be a citizen of post US renunciation.
Prior to the appointment applicants will need to fill out a DS-4079. The DS-4079 combines information and a questionnaire. Applicants should also review the forms they will need to fill out in the appointment, the DS-4080, 4081, 4081 and 4083.
You must take the relevant forms along with your birth certificate, your US passport and the passport of your alternative citizenship. If your second passport country issued a certificate of naturalisation you will be required to bring that too.
Embassies and consulates are often very busy with long ques so ensure you leave plenty of time in order to get to your appointment.
In the appointment you will be required to sign, date and check boxes on the DS-408o – Oath of Renunciation of the Nationality of the United States, US State Dept; DS-4081 – Statement of Understanding Concerning the Consequences and Ramifications of Relinquishment or Renunciation of US Citizenship, US State Dept; and DS-4083 – Certificate of Loss of Nationality of the United States, US State Dept.
A witness, who must be a consular officer, will need to fill out and sign a DS-4082 – Witnesses’ Attestation Renunciation/Relinquishment of Citizenship, US State Dept.
Ensure that you and the consular officer or your lawyer (if applicable) have proofread everything and that all signatures are correctly placed.
Having completed the necessary paperwork, you will be presented with a DS-$083, also known as a Certificate of Loss of Nationality (CLN), which will be signed and affixed with an official seal. This critical document is the physical evidence of your completed renouncement of US citizenship and must be kept safe. The CLN must go on to be approved by the State Department which can take a number of months. In the interim, the CLN is your evidence of the date you formally signed renunciation.
The final step, while waiting for the State Department approval, is to file a final US tax return. Your final tax return will cover January 1st to the day of expatriation, although fair market valuation of your assets will be of the day prior to expatriation as you cease to be a taxable person to the IRS on the day that you renounce citizenship. Unless the date of renunciation if December 31st, you must complete a Form 1040. If your earnings are high you may also be required to file the exit tax form known as IRS Form 8854.
Completing these forms correctly is very important and the IRS forms are frequently updated so must ensure you complete the most recent version. Failure to complete the forms correctly can lead to rejection of your renunciation and legal action against you, including large fines.
Why seek legal advice:
Renouncing US citizenship is an irrevocable and serious act which should not be undertaken without due consideration, the assurance of alternative citizenship, and certainty that it will provide the desired outcomes.
Should you determine it is the right choice for you, the high cost and need for absolute accuracy in completing the forms and taxes mean there is a high risk from mismanaging of an application. It is therefore recommended that you seek legal advice prior to even beginning the process of US citizenship renunciation.