Americans moving due to increased taxes is increasing here in the U.S., due to increased taxes, at both the national, city, and state level. Yet most do very little planning to determine the implications of moving to a foreign country, the new tax laws of that country, and the tax laws that apply to an ex pat who moves overseas. Most also do not realize that the United States is one of the few countries to tax based on citizenship, not on where you live or what is known as residency.
Americans moving offshore is not new, but what is new is that it has been increasing steadily over the last few decades. In the first quarter of this year, 1099 Americans moving overseas due mainly a lower cost of living in warmer climates. Yet in both 2017 and 2018, more than 5,000 United States citizens gave up their U.S. passports, due mainly to the increased tax burden that they say is hampering their ability to get by.
Americans moving offshore who reside in another country must file a report of foreign bank and financial accounts or a FBAR. That form should disclose any assets in any accounts that is over $10,000. If you fail to file a FBAR, you end up with rather steep penalties. The penalty for a willful non filing of FBAR is a $100,000 penalty or 50 percent of the balance of the account, which ever is greater. A non-willful filing starts at $10,000.
At the same time the foreign Tax Compliance Act requires foreign institutions to disclose the holdings of U.S. citizens. That includes the foreign earned income exclusion, which allows Americans to exclude up to $104,100 in 2018 that they earned in another country. In order to take that exclusion, Americans must pass one of two tests. The first is a physical presence test, which requires individuals to demonstrate that they have been in that country for 330 days of a year. The other is a bona fide residence test.