U.S. and Dutch tax laws are simply incompatible

“The U.S.’s citizenship-based taxation system is simply incompatible with the circumstances of citizens like me living abroad. In the Netherlands, for instance, there is a tax for purchasing and maintaining a  home rather than for selling it, whereas the U.S. taxes people when they sell a house. For financial accounts, for instance when you save or invest, there is a wealth tax rather than a capital gains tax. These differences with U.S. tax law make it incredibly difficult to recoup the protections of the double-taxation treaty.”

— Milad Mohammadi

Dear Members of Congress,

My name is Milad and I am writing to express my support for residence-based taxation over the grossly unfair citizenship-based taxation system we have today. 

I was born and grew up in New York before moving to the Netherlands in late 2022. A multitude of reasons drove me to move abroad. These included getting married and more affordable university tuition fees for my wife. Since then, filing my U.S. taxes on top of the Dutch taxes I already pay has been an enormous, expensive, and stressful project each year.

Conflict of tax laws

The U.S.’s citizenship-based taxation system is simply incompatible with the circumstances of citizens like me living abroad. In the Netherlands, for instance, there is a tax for purchasing and maintaining a  home rather than for selling it, whereas the U.S. taxes people when they sell a house. For financial accounts, for instance when you save or invest, there is a wealth tax rather than a capital gains tax. These differences with U.S. tax law make it incredibly difficult to recoup the protections of the double-taxation treaty.

FATCA and FBAR difficulties 

Aside from the conflicts between the tax laws between these countries, FATCA is another devastating aspect of U.S. compliance obligations. Because of FATCA, very few banks are willing to let Americans abroad like me bank with them, and those that do offer very limited services. I cannot, for instance, open an investment account with my bank, and am instead forced to save only in a simple savings account, yielding an interest rate far below the rate of inflation. At the same time, very few U.S. brokerages are willing to accept me, and those that do are either for sophisticated investors or have costly transfer and foreign exchange fees.

The FBAR is another source of frustration. As I have a couple businesses on the side, I have to report multiple bank accounts. Even having several accounts at the same bank, but with different currencies, or different types (e.g. savings vs. checking) requires separate reporting. 

All of this is incredibly onerous, especially given that I already have to comply with Dutch tax laws. I can’t imagine how costly and difficult this would be for someone not as aware or at retirement age.

Residence-based taxation, please

There is only one obvious solution to this issue. It is for the United States to join the rest of the developed world and adopt residence-based taxation. This would ensure Americans residing abroad continue to pay U.S. taxes on income earned in the U.S., while only reporting and paying taxes on foreign earnings to their respective country of residence. This is the way every other democratic country on the planet taxes its citizens. It’s time for the United States to stop treating Americans who live abroad like second-class citizens. 

Sincerely, 

Milad Mohammadi