NYTimes: Banking issues for Expats

[walkinwood]

More American Expatriates Give Up Citizenship - NYTimes.com

Since a number of forum members are considering an expat lifestyle, I thought this article is pertinent.

It says that an increasing number of expats (still, a very small number) are giving up their US Citizenship because of tax policy and the difficulty keeping a US based bank account due to the Patriot Act.

 

[Alan]

It sounds like the law must be so complex that banks are taking no chance and closing accounts of US ex-pats.

In response, Treasury Secretary Timothy F. Geithner wrote Ms. Maloney on Feb. 24 that “nothing in U.S. financial law and regulation should make it impossible for Americans living abroad to access financial services here in the United States.”

I know that it is nigh on impossible to open a new bank account in the UK if you are a UK ex-pat living abroad and we are so fortunate that because we never closed our UK bank that we are allowed to continue to have one - needed these days as I have a 2 UK pensions from a previous employers so I don't have to transfer and pay fees and whatever the exchange rate is on the date the pension is paid. (I don't maintain a UK address and the bank has my US address and phone numbers).

My brother is an ex-pat in Australia and we recently each received an inheritance when my Dad died. He was over for the funeral for a couple of weeks and was unable to open a bank account as he never kept his open when he left in the 90's. My sister has opened an account in her name and will keep the money until exchange rates are more favorable. He also will be receiving UK pensions in a few years so is going to be stuck with excessive fees and non-optimal exchange rates.

 

[Texas Proud]

Alan.... I was an expat in England.... and I can tell you it was harder to open an account over there than it was here... and this was before all the terrorist laws...

I HAD to have a letter from my employer that I was working in England... if I was not... no account... I HAD to have a UK address... if not, no account..

Now, even back then I heard how hard it was to get a bank or brokerage account in the US if you did not have a US address... I had a number of British people ask if they could use my home address for their accounts... they had to use a British broker who charged a LOT more than the discount brokers here... again, this was in '99 and '00... so a lot has probably changed....

 

[dex]

More American Expatriates Give Up Citizenship - NYTimes.com

Since a number of forum members are considering an expat lifestyle, I thought this article is pertinent.

It says that an increasing number of expats (still, a very small number) are giving up their US Citizenship because of tax policy and the difficulty keeping a US based bank account due to the Patriot Act.

Do they lose their social security benefits when they do this?

I can see people doing it if they are living and working in another country and don't plan to return to the USA; but not solely because of the banking issue. How difficult is it to use a relative's USA address, mail forwarding addresses or even a UPS mail box (they were listed as street addresses when I rented one awhile ago)?
The USA will not stop the tax on foreign earnings; politically incorrect - rich working abroad not paying taxes will not happen.

 

[traineeinvestor]

Opening bank accounts can be a real pain - this is why I have kept all my accounts open - even the ones I don't really use.

The other way of dealing with this issue is to use a bank with a global network - I use HSBC in HK and they would be able to open an account for me in the UK etc should I ever need it. It is not the cheapest option in the world but at least I can get the account open should I need it.

 

[Alan]

Alan.... I was an expat in England.... and I can tell you it was harder to open an account over there than it was here... and this was before all the terrorist laws...

I HAD to have a letter from my employer that I was working in England... if I was not... no account... I HAD to have a UK address... if not, no account..

Now, even back then I heard how hard it was to get a bank or brokerage account in the US if you did not have a US address... I had a number of British people ask if they could use my home address for their accounts... they had to use a British broker who charged a LOT more than the discount brokers here... again, this was in '99 and '00... so a lot has probably changed....

Yeah, it's really tough. My brother moved to Australia in 1994, had his house rented out through 2001 and shortly after he'd sold it he closed his UK bank account and wishes now he'd kept it open. Sounds like it was not going to be possible even before 9/11.

My own bank account was opened in 1986 at a small branch in a village in Yorkshire and is still where I bank although some years ago it was bought out by HSBC which is well set up for global customers.

The only problem I've really had was a few years ago when our Debit cards were about to expire and we got letters saying "Due to increased security measures cards are no longer being mailed out, you must pick up your card at the branch you bank at within 30 days". I received this letter at my US address with the correct airmail postage

It took a couple of e-mails before they got their act together and the new cards we got last year were mailed to us as usual

 

[Alan]

Do they lose their social security benefits when they do this?

When I was working here on visa's and a green card I think I remember the company accountant's told us that if we re-located back to the UK and we had paid into SS long enough that we were entitled to SS at the appropriate age even though we were not US Citizens because we had been legal workers paying taxes etc.


This still seems to be the case, depending on which country you are a citizen of...

Your Payments While You Are Outside The United States

If you are not a U.S. citizen or a citizen of one of the other countries listed above, your payments will stop after you have been outside the United States for six full calendar months unless you meet one of the following exceptions:

• <LI class=ninetypercent>You were eligible for monthly Social Security benefits for December 1956; or <LI class=ninetypercent>You are in the active military or naval service of the United States; or <LI class=ninetypercent>The worker on whose record your benefits are based had railroad work treated as covered employment by the Social Security program; or <LI class=ninetypercent>The worker on whose record your benefits are based died while in the U.S. military service or as a result of a service-connected disability and was not dishonorably discharged; or
• You are a resident of a country with which the United States has a Social Security agreement.
  
  Currently, these countries are:

​

For a full list of the countries I'll leave you to follow the link ​

• Australia
• Austria
• Belgium
• Canada
• Chile
• Czech Republic
• Denmark
• Finland

• France
• Germany
• Greece
• Ireland
• Italy
• Japan
• Korea (South)
• Luxembourg

• Netherlands
• Norway
• Poland
• Portugal
• Spain
• Sweden
• Switzerland
• United Kingdom

 

[dex]

When I was working here on visa's and a green card I think I remember the company accountant's told us that if we re-located back to the UK and we had paid into SS long enough that we were entitled to SS at the appropriate age even though we were not US Citizens because we had been legal workers paying taxes etc.

Thanks.

That being the case; I wonder what the benefits are of being a US citizen?
From the WSJ article if a person doesn't have a certain amount of money they wouldn't pay any exit tax - maybe on a 401K.

If the person is retired and likes the USA couldn't they renounce their US citizenship and rent (or buy a RV) in the USA to live? They then would not be subject to US income taxes?

If correct, what country would be easy to get a good/respected (easy travel) passport and low taxes?

Am I missing something?


Law Makes Escape Tougher For Tax Exiles - WSJ.com


Under the new law, the 10-year transition rule is abolished. U.S. citizens and long-term residents who are terminating their status will be taxed once on their unrealized gains, at current market rates. Stock portfolios, real estate, art and most other types of assets will be captured by this new "mark to market" tax. Some experts say the new law could deter some citizens or residents from leaving the U.S., since the benefits of doing so will be reduced. Yet the simplicity of the new one-time tax may appeal to others.
One aspect of the new law that has practitioners concerned is that it applies not only to U.S. citizens but long-term residents. That means it will capture foreign executives who have been permanent residents of the U.S. for more than eight years. "There are a bunch of green-card holders who may fall prey," says Mr. Alden. They may now owe taxes to both their native country and the U.S., he says.
As in the old system, the new rules are triggered only for individuals with a net worth of $2 million or more, or who owed more than $124,000 in income taxes on average over the past five years, indexed for inflation. Even if one of those conditions is met, the first $600,000 in gains are not subject to the tax.

 

[MichaelB]

More American Expatriates Give Up Citizenship - NYTimes.com

Since a number of forum members are considering an expat lifestyle, I thought this article is pertinent.

It says that an increasing number of expats (still, a very small number) are giving up their US Citizenship because of tax policy and the difficulty keeping a US based bank account due to the Patriot Act.

I have relatives, non-us citizens, not living in the US, with US bank accounts. The NY Times article is quite anecdotal.

 

[MichaelB]

If the person is retired and likes the USA couldn't they renounce their US citizenship and rent (or buy a RV) in the USA to live? They then would not be subject to US income taxes?.

A US citizen can't renounce citizenship and continue to live in the US.

 

[Calgary_Girl]

I have suggested this to DH (who is American) every year around tax time .

We live in Canada, I am a Canadian citizen, DH is an American citizen and we have no plans to ever move to the States. It is a major pain-in-the-a** to file two income tax returns every years (and it ticks me off that I need to file a U.S. return due to the sheer fact that I am married to an American but am not American myself ).

Also, every year we need to provide our Accountant a list of all of our Canadian retirement balances and investment balances (which is a pain in the a** as well). The lawyer who wrote up our wills also said DH would be subject to the Estate Tax once he dies (as far as I know, we don't have this in Canada).

 

[DangerMouse]

I have relatives, non-us citizens, not living in the US, with US bank accounts. The NY Times article is quite anecdotal.

The problem is even if you have a trading account and bank account, when you relocate outside the US you can encounter issues. I know last time we went back to Australia to live, we had substantial assets with Wellstrade. We were allowed to sell our holdings, but we could not buy anything due to the US Govt ruling. We were unable to open an account with any other company because we were not resident in the US. It was absolutely ridiculous as they still required us to submit a tax return.

As Alan has pointed out, if you are from certain countries it is possible to collect social security.

We have recently commenced the green card process after being resident in the US for 12 years. However, we are questioning the wisdom in doing so. If when the time comes for us to leave, we don't have a green card we will have no tax liability. The only issue would be we could not stay at our Hawaii condo for more than 3 months at a go. If we return to Australia, we will never have to worry about death taxes as they were abolished long ago and we will have national health.

 

[MichaelB]

I have suggested this to DH (who is American) every year around tax time .

We live in Canada, I am a Canadian citizen, DH is an American citizen and we have no plans to ever move to the States. It is a major pain-in-the-a** to file two income tax returns every years (and it ticks me off that I need to file a U.S. return due to the sheer fact that I am married to an American but am not American myself ).

Also, every year we need to provide our Accountant a list of all of our Canadian retirement balances and investment balances (which is a pain in the a** as well). The lawyer who wrote up our wills also said DH would be subject to the Estate Tax once he dies (as far as I know, we don't have this in Canada).

I know what you mean. We also dealt with this for years. It really is shameful. Congress knows quite well that this is the definition of unfair and unjustifiable taxation, but they have no reason or motivation to change it.

 

[dex]

A US citizen can't renounce citizenship and continue to live in the US.

Couldn't they visit for a period of time, leave and then come back on their new country's passport? Or are you saying they can never enter again.

 

[MichaelB]

Couldn't they visit for a period of time, leave and then come back on their new country's passport? Or are you saying they can never enter again.

Yes. With a visa. Like any other foreign visitor. And after meeting the requirement for time out of the US. Not sure I understand why someone would want to do this though. I can just imagine immigration on someone in that situation.

 

[Alan]

Yes. With a visa. Like any other foreign visitor. And after meeting the requirement for time out of the US. Not sure I understand why someone would want to do this though. I can just imagine immigration on someone in that situation.

I think you are correct on this, that renouncing citizenship does not does ban you from entering the country ever again.

If you can believe Wikipedia...

Renunciation of citizenship has also been used to avoid tax obligations (see tax haven), in particular in the United States which is one of the few countries that tax based on citizenship rather than residency. As nearly all countries tax based on residence rather than citizenship, the number of renunciants from other countries is far less than in the United States. The United States has over 600 renuniciants per year, which can be principally linked to tax-related expatriations.[1] Information on the number of renunciants from the United States can be found in the Federal Register (http://www.gpoaccess.gov/fr/index.html), which records on a quarterly basis the number of US citizens renouncing US citizenship. Renouncing citizenship is also referred to as expatriation or expatriating.

I know that now we are retired we have to be very careful in taking extensive visits to the UK where taxation is based on residency. We plan on 6 months there next year and the current rules are (I think) that they look at a rolling average over a period of 4 years so that you should be out of the country on average 9 months / year.

If I get it wrong and fall afoul of the residency rules I'll let you know

 

[MichaelB]

I know that now we are retired we have to be very careful in taking extensive visits to the UK where taxation is based on residency. We plan on 6 months there next year and the current rules are (I think) that they look at a rolling average over a period of 4 years so that you should be out of the country on average 9 months / year.

If I get it wrong and fall afoul of the residency rules I'll let you know

Then you'll want to document very carefully where you are. I was audited multiple times by NY state on this and it was the quality of the documentation that saved the day. I also had issues in Venezuela (company liability, not personal) when passport stamps could not be deciphered and Venezuelan tax authorities conveniently refused to accept alternate proof of location (hotel bills and such). PW was our auditor back then and the manager told me that once the tax authorities saw quality documentation they immediately turned their attention elsewhere.

 

[dex]

I know that now we are retired we have to be very careful in taking extensive visits to the UK where taxation is based on residency. We plan on 6 months there next year and the current rules are (I think) that they look at a rolling average over a period of 4 years so that you should be out of the country on average 9 months / year.

If I get it wrong and fall afoul of the residency rules I'll let you know

Thanks - this is just a mental exercise.
If taxes in the USA get high enough for retires then maybe people will, renounce their USA citizenship, become a citizen of another country with a low tax rate, allowed to collect SS, respected passport, and visit the USA when they want.

Dubai anyone?

Head to Dubai for the world's lowest tax rates - Times Online
Workers seeking out the lowest tax rates in the world should head to Dubai, Russia or Hong Kong, according to a league table of the world’s most attractive personal tax hot spots.

 

[Onward]

Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.

So what does that mean? Is a P.O box enough? A (non-P.O.) box at the UPS Store? The address of a friend in the U.S.?

 

[Alan]

Then you'll want to document very carefully where you are. I was audited multiple times by NY state on this and it was the quality of the documentation that saved the day. I also had issues in Venezuela (company liability, not personal) when passport stamps could not be deciphered and Venezuelan tax authorities conveniently refused to accept alternate proof of location (hotel bills and such). PW was our auditor back then and the manager told me that once the tax authorities saw quality documentation they immediately turned their attention elsewhere.

Thanks for the warning. I've had to struggle with all this in the past for evidence to not pay taxes in the UK, including all the in/out dates to prove non-residency. Now that I'm retired it should be much easier PLUS I renewed my US passport last year so it is pretty clean. I had to have extra pages added to my old passport because of all the business travel I had to do.