I'm a digital nomad. Should I renounce my US citizenship?
Probably not! Let’s take a look at the pros and cons.
The benefits of renouncing your American citizenship
The primary reason Americans renounce their citizenship is tax avoidance. Tax avoidance is totally legal! It simply means arranging your affairs to pay as little tax as possible, within the law. In contrast, tax evasion is illegal.
After paying a final exit tax, former Americans no longer have to file a tax return with the IRS every year, or pay taxes on their non-US income. This allows them vastly more options for tax avoidance.
United Kingdom Prime Minister Boris Johnson was born in New York, making him American. He failed to renounce his US citizenship before making a profit on the sale of London real estate, thus racking up an avoidable tax bill to the IRS!
[Boris] Johnson wasn't always happy being American. In 2015, he settled a U.S. tax bill that he had described as "absolutely outrageous."
Unlike most countries, the U.S. taxes its citizens on all income, no matter where it's earned or where they live. The rules can sometimes result in surprise tax bills for Americans who live abroad.
Johnson had initially refused to pay the bill, saying the IRS was "coming after him" for capital gains tax on the sale of his first London home.
Use businesses and banks that ban Americans
To greatly simplify, because of a US law called FATCA, all financial institutions worldwide must report on their American clients to the IRS. To avoid the cost of complying with this law, some simply ban Americans from using their services.
Show your disapproval of the government
Some Americans renounce their citizenship because they disapprove of the government.
For me, the tax benefits of renunciation of US Citizenship are small compared to the benefits of no longer being bound to the fear, anger and drama of that country. Not to mention not having any obligation to support the United States financially, emotionally, or spiritually.
Serve a senior role in a foreign government
Some foreign governments don’t allow dual citizens to serve in senior government roles, so Americans who want these roles have to renounce.
FOR Michael B. Oren, the hardest thing about becoming Israel’s ambassador to the United States was giving up his American citizenship, a solemn ritual that involves signing an oath of renunciation. He said he got through it with the help of friends from the American Embassy in Tel Aviv who “stayed with me, and hugged me when it was over.”
The downsides of renouncing your American citizenship
You no longer have the right to live in, work in or visit the United States
Most former Americans visit the US using their other passport. (You should only renounce if you have citizenship in another country.) But after you renounce, the US can arbitrarily deny you entry.
Roger “Bitcoin Jesus” Ver learned this the hard way. He acquired citizenship in Saint Kitts and Nevis and then renounced his US citizenship. He then applied for a visa to enter the US and was denied. In the rejection, the US Embassy told him:
"One of the most common elements within the various nonimmigrant visa requirements is for the applicant to demonstrate that they have a residence in a foreign country which they have no intention of abandoning ... You have not demonstrated that you have the ties that will compel you to return to your home country after your travel to the United States."
Before renouncing, be sure you’d be comfortable never setting foot in the US again. If your family lives in the US, this is a very serious issue for you.
It may get even harder for former Americans to enter the US. A law called the Ex-PATRIOT Act was proposed after Facebook founder Eduardo Saverin renounced his American citizenship and became Singaporean.
[T]he expat would have to pay a tax of 30 percent on future investment gains and would never be allowed to visit the U.S. again.
The Ex-PATRIOT Act did not become law, but the idea behind it lives on. Americans who renounce their citizenship are an easy target for politicians.
You no longer have a US passport
A US passport allows visa-free or visa-on-arrival entry to 155 countries, among the best passports in the world. If your other passport also allows access to a large number of countries, you won’t be giving up much visa-free travel by renouncing. Double-check entry requirements for all countries that are important to you before renouncing.
For example, let’s say you have US and Irish passports. Both of these passports are considered some of the most powerful in the world, so renouncing US citizenship won’t be much of a sacrifice.
But what if you frequently travel to Equatorial Guinea? Holders of a US passport can travel to Equatorial Guinea visa-free, but holders of an Irish passport must receive a visa before arriving. If travel to Equatorial Guinea is important to you, you should consider holding onto your US passport.
If your other passport has much less power than your old US passport, you’ll need to get a visa for a lot of countries you didn’t before.
Being American entitles you to consular assistance from the US when you’re abroad. Diplomats will help you in various situations, such as if you are arrested, if the US is evacuating their citizens from a country, or various other issues. Once you renounce, you’ll rely on consular assistance from your other country.
Special issues for digital nomads
Some digital nomads cross borders multiple times a year, never staying in any one country long enough to become a “tax resident.” (More on tax residency in a future post.) However, Americans are always a tax resident of the US, no matter where they are.
Some nomads take advantage of laws designed to attract foreigners and digital nomads. These countries (such as Portugal) have low or zero tax on foreign income, cryptocurrency investments, and other income sources popular with nomads. These programs encourage immigration. Non-Americans residing in these countries can avoid a great deal of tax. However, US passport holders can only benefit so much because their worldwide income is taxed no matter what by the US.
In the end, should you renounce?
How valuable is your US passport to you? For many “accidental Americans” like Boris Johnson, it is nothing but a tax burden. For those of us with family, friends and business contacts in the US, giving it up would be a big sacrifice.
Before renouncing for tax reasons, consult a tax professional. Depending on your situation, there can be ways to structure your business to avoid taxes and hold onto your US passport. You should also take a close look at how much money you stand to save. It should be substantial, considering what you’d be giving up.
I would only advise someone to renounce if they’re expecting a windfall or have a very high income, cannot otherwise structure their business to avoid tax, and have little or no attachment to the US.