How Are Countries Starting to Tax Citizens Like the US?

TL;DR

Countries are beginning to impose tax obligations on citizens after they leave, requiring them to file taxes for several years post-departure. This trend, seen in places like Australia and Norway, aims to prevent tax avoidance and could lead to international agreements on minimum taxation rates for nationals abroad. Expats should consider obtaining second citizenship and effective tax planning to mitigate these burdens.

Transcript

hi it's a wealthy expat here being a u.s citizen or soon-to-be former u.s citizen i know the struggles of paying taxes based on your citizenship and i get a lot of questions from a lot of my clients from other countries that are not the united states on whether their country is headed in the same direction of citizenship-based taxation are you goin... Read More

Key Insights

• 🚕 Many countries are considering measures to prevent tax avoidance and ensure tax payments from their citizens living abroad.
• 🍃 The first level of these measures involves making it harder for individuals to leave by imposing taxes even after they move abroad.
• 💁 The formation of unions or agreements among countries may result in standardized taxation rules for expats.
• 🛀 The enforcement of FATCA shows a trend towards increased reporting and monitoring of citizens' financial activities globally.
• 🚕 Expats should consider obtaining second citizenship, proper tax planning, and moving to jurisdictions that welcome their wealth to protect themselves from potential tax burdens imposed by their home country.
• 👮 Changes in tax laws and restrictions on movement may take years to implement due to bureaucratic processes.

Questions & Answers

Q: How could countries start taxing citizens like the US?

The speaker expects a gradual shift rather than the immediate adoption of explicit citizenship-based taxation. The three possible stages are extending taxes for years after departure, coordinating minimum taxes across countries or unions, and requiring broader reporting of citizens’ financial activities.

Q: Is Canada implementing citizenship-based taxation?

Citizenship-based taxation has been proposed in Canada by smaller parties, but the speaker says it is not law or pending law. The proposal would require Canadians abroad to pay tax because of their Canadian citizenship and associated benefits, even if they rarely or never visit Canada.

Q: Does the speaker expect Canada to adopt citizenship-based taxation soon?

No. The speaker says it will definitely not happen within the next one to two years, while emphasizing that the Canadian idea is currently only a proposal.

Q: How could Australia make it harder to become a nonresident for tax purposes?

The speaker describes a proposed Australian rule under which someone leaving would continue paying taxes for the next three years. They would also need to remain outside Australia during those three years before becoming a tax nonresident.

Q: What happens to taxes after someone leaves Norway?

According to the speaker, Norway can continue imposing taxes for multiple years after a person leaves. This is presented as taxation tied to a former residence rather than formal citizenship-based taxation.

Q: How might the European Union tax EU citizens living in tax-free countries?

The speaker predicts that the EU could require passport holders living in places such as Dubai or the Cayman Islands to pay a minimum tax to their home country or the EU. Suggested examples include 5%, 10%, or 10.5%, but the speaker presents these figures as hypothetical rather than an existing policy.

Q: When does the speaker think an EU minimum-tax system could emerge?

The speaker predicts that some form of EU-wide program might appear within four to five years. Germany, the Netherlands, and Spain are described as more aggressive on taxation, while Portugal and Eastern European countries may be less comfortable with the idea.

Q: Could countries coordinate taxes without forming a formal union?

Yes, according to the speaker, countries such as Canada, Australia, New Zealand, and the UK could adopt similar minimum-tax rules without creating a union. One country might copy another’s approach, gradually producing comparable rules for nationals who move to tax-free places or tax havens.

Summary & Key Takeaways

• Many countries are proposing and implementing laws to prevent citizens from avoiding taxes, making it difficult for expats to minimize tax payments.

• The first level is making it harder to leave, with countries like Australia and Norway requiring citizens to pay taxes even after leaving.

• The second step is the formation of unions or agreements among countries to harmonize taxation, with the European Union being a potential example.

• The final step is the enforcement of the Foreign Account Tax Compliance Act (FATCA), where countries force tax havens and financial institutions to report on the financial activities of their citizens.