FAQ

Residence-based taxation (RBT) means declaring income in the country in which you live and/or earn the income. Its opposite is citizenship-based taxation (CBT), in which people are required to declare income and potentially pay taxes to a country of which they’re a citizen but where they do not live. The only other country with CBT similar to that of the United States is Eritrea (a dictatorship)– and even its system is not as unfair and discriminatory as the U.S. system.

Note: Even under RBT, a U.S. citizen living abroad would continue to have to pay taxes on U.S.-source income such as real estate rental income or retirement income because it is considered “earned” in the United States.

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No!  The RBT proposal would separate the concept of citizenship from the concept of tax residency.  Americans abroad who elect to be treated as non-residents would remain U.S. citizens.

●      The Elective RBT bill includes a FATCA non-discrimination provision which is intended to prevent foreign financial institutions from denying service to U.S. citizens who reside in the country where the financial institution operates.

●      The bill would also enable an electing individual to obtain a certificate of non-residency to demonstrate to a foreign financial institution that he/she is not a specified U.S. person subject to FACTA.

●      Re-establishment of tax residency will be triggered by the same physical presence thresholds which apply to non-citizens who move to the United States.

●      Previously paid departure tax would not be refunded, but the tax basis in these assets would be set to the fair market value of the assets when the departure tax was paid.

●      For those who return after a short stay abroad (less than 3 years), the election to be treated as a non-resident will be retroactively reversed, and these individuals will have to re-file as resident taxpayers for the years in question.

●      The Elective RBT proposal calls for a departure tax which would apply to high-net-worth citizens with net assets exceeding the estate tax unified credit threshold (currently $13.61 million) who make an RBT election. The departure tax would entail paying a capital gains tax on any deferred gains as if those assets were sold on the date of making an election to be treated as a non-resident.  Certain types of assets such as pensions and a primary residence abroad would be excluded from the tax, as would U.S. real estate (because it would be taxable when sold, even for a non-resident taxpayer).

●      There will also be special transition rules which exempt many current long-term Americans abroad and “Accidental Americans” from the Departure Tax.

Yes, Americans abroad who own small businesses will be relieved from GILTI because it is a tax applied to the “United States shareholder” of a controlled foreign corporation.  The definitions of “United States person” and “United States shareholder” will exclude citizens who elect to be treated as non-residents, so they will not be responsible for reporting and paying GILTI tax.

According to IRS data from 2020, there were 1,388,740 tax returns filed from abroad with a total tax liability of $6.4 billion.  These figures include tax returns filed by military and state department employees who would not be eligible to elect RBT.  Publicly available data does not allow us to determine how much of the tax liability resulted from U.S. source income, which would also be unaffected by RBT.  Therefore, the total revenue impact of RBT would be some amount less than $6.4 billion per year, and would be offset by new revenue generated from the departure tax on high net worth citizens who elect RBT. 

The current proposal would not result in any changes to the Estate Tax.  Note that the Estate Tax is in subtitle B of the U.S. tax code and is entirely separate from the income tax in subtitle A. Citizenship is fundamental to the structure and definitions of subtitle B.[1]

Under current law, the entire worldwide estate of U.S. citizens (including Americans abroad) is subject to the Estate Tax, but a unified credit of $13.61 million is available to reduce assets subject to taxation.  For non-citizens who are domiciled outside the United States, only U.S. situs assets are subject to the Estate Tax, but a much lower credit of $60,000 is applied.

[1] https://www.law.cornell.edu/uscode/text/26/subtitle-B/chapter-11

●      Unearned Income: While the Foreign Earned Income Exclusion allows non-resident citizens to exclude up to $126,500 (in 2024) of earned income from U.S. taxation, only employment income can be excluded. Those who earn their income from other sources, such as self-employment, pensions, unemployment, disability, child care, parental leave, pandemic support, etc. are subject to double taxation by the U.S.

●      Net Investment Income Tax: Most Americans Abroad living in high tax jurisdictions use Foreign Tax Credits to offset taxes payable to the U.S. However, the 3.8% Net Investment Income Tax (NIIT) or “Medicare tax” cannot be offset by foreign tax credits. Medicare can’t be used outside the U.S., so they owe tax for something they don’t benefit from. This means that there is always a 3.8% double taxation on the passive income of higher earners living abroad.

●      Phantom Currency Gains: The U.S. requires its citizens to calculate gains and losses using the U.S. dollar as a “functional currency.” This means that there may be cases where U.S. tax is owed on the dollar-denominated appreciation of an asset, even if the asset lost value in the taxpayer’s home country currency. The most egregious example relates to the sale of a home. U.S. citizens who reside in the United States can often sell their principal residence without owing any tax on the capital gain. However, due to the functional currency rule, overseas residents are not only required to calculate the change in value of the home in U.S. dollars, but a similar currency calculation is also applied to the mortgage balance, with the devastating consequence that there may be a taxable currency “gain” if the dollar value repaid is less than the dollar value which was originally borrowed. Gains/losses on the home and the mortgage cannot be used to offset each other; only the gain is taxed while the loss is ignored.

●      Passive Foreign Investment Company: Non-U.S. mutual funds, ETFs, and certain types of pension or annuity products may be categorized as a “Passive Foreign Investment Company” (PFIC), which results in punitive taxation on “excess distributions.” Due to the way interest charges are incurred on taxes assessed on these distributions, over longer investment time horizons, the U.S. tax can potentially exceed the total amount of earnings from a particular investment.

●      Small Business Owners: Corporate tax rules intended to apply to overseas subsidiaries of multinational corporations are applied to small businesses owned by Americans residing abroad, resulting in the punitive taxation of undistributed income (the “GILTI” regime).

●      Bilateral tax treaties: are intended to prevent double taxation. However, these treaties always include a provision called the “saving clause,” which reserves the right of the United States to tax its citizens based on citizenship, effectively overriding the other provisions of the treaty which would otherwise provide some margin of relief for U.S. citizens. As a result, many of the treaty protections do not apply to U.S. citizens living in the treaty country, and in fact only protect Green Card holders living in the treaty country, as well as treaty country citizens living in the United States.

Several other countries have had, and repealed, citizenship-based taxation. The U.S. law dates from the 18th Century and is clearly outdated, out of touch with global best practice, disproportionate and discriminatory vis-à-vis U.S. citizens abroad. Since many U.S. citizens pay more taxes abroad than they would in the United States anyway, the United States may not even lose tax revenues (due to foreign tax credits)—but its citizens abroad will breathe easier and have a reason to stop renouncing their citizenship.

Our objective is ambitious, but we are convinced that if we succeed in strongly mobilizing the huge community of Americans living outside the United States, we will be able to convince Congress to adopt Residence-Based Taxation.

Various organizations have proposed country-of-residence carve-outs as a partial solution to the U.S. tax and compliance woes of Americans abroad. Indeed, they would help many Americans abroad, but not all Americans abroad, for at least three good reasons:

1. Country-of-residence exceptions for local bank and financial accounts of Americans abroad do not address the problems caused by the fact that many "accidental" Americans who have never lived or worked in the United States do not have social security numbers.

2. They also do not resolve the problems of cross-border workers who may live in one country and work in another.

3. They would also unfairly limit the freedom of people who live in common economic areas such as the 27-nation European Union. Anyone in the EU is allowed to work in one country and have investment accounts in another, just like Americans living in one state but with a bank in another.

The only acceptable solution for accidental Americans and people working in border areas is full residence-based taxation.

Yes, the United States would always retain the right to tax income that is sourced in the U.S..  This would follow the same system that currently applies to any non-citizen non-resident who has income from the United States.  Under RBT, an American abroad who has U.S. source income would either be subject to withholding, or would need to file a form 1040-NR to declare and pay tax on U.S. source income.  This would be a significantly simpler process than what is currently required for Americans to declare their worldwide income on a form 1040.

We are funded typically with small donations by individual donors, all of whom are U.S. citizens. We will comply with all applicable laws.

To help, please click on the Donate button at the top of the page.

All funds collected will be used to finance public relations and advocacy activities.

We are actively seeking donations in order to mount a campaign to overturn citizenship-based taxation and replace it with residence-based taxation.

Our founders have a proven track record of putting donations to good use and getting results.

We are not starting from scratch, but will build on the hard work of many other organizations over many years. In order to end citizenship-based taxation, we need to identify and enlist a large number of Americans who live abroad and who suffer from the effects of CBT.

Some other organizations that share similar goals are partisan by nature, or have many different goals, or are fighting for different forms of incremental relief. We have only one mission, to end CBT, and we will invest all our resources to that end. We have a large number of willing and talented volunteers and also intend to hire the best professionals to help us where needed.

We are happy and proud to be Americans and should not have to renounce our U.S. citizenship to be treated fairly. Other developed countries allow their citizens to have more than one nationality but do not impose citizenship-based taxation. Many of us were born in the United States, raised in the United States, went to college in the United States and/or are still culturally closer to the United States than to the countries in which we live. Moreover, if a child is born in Germany to one U.S. parent and one Italian parent and only lives a short time in Germany, that child may identify more with the United States and with Italy because of family connections than he or she will with Germany, of which he or she might not even be a citizen. If that child later lives in other countries long enough to acquire other nationalities he or she will still be American—but should only have to pay taxes in the country where he or she lives and/or earns taxable income.

Some organizations do not go far enough. For example, they may oppose reporting obligations related to citizen-based taxation, but still tolerate the principle. We don’t. The United States is the only developed country in the world that requires its citizens living in other countries to file a U.S. tax declaration on non-U.S. income and related financial reporting forms every year in addition to having to do the same thing for the countries in which they live. We want the United States to repeal citizenship-based taxation altogether and accept the global standard of residence-based taxation.