Countries Around the World Offer Tax-Free Status – But US Citizens Need to Be Aware of the Pitfalls!

Ever thought of moving to another country with a warmer climate, fantastic food, wine, and rich history? Portugal, which is ranked as the fourth-best country to retire in, is one of many countries offering a “Golden Visa” program where residency is granted to non-citizens based on financial investment, capital transfer, property acquisition or business investment.

Programs like these have been a boon to many countries that have seen their economies benefit from an influx of foreign capital, and they can be an amazing tax savings tool for recipients of the visas. Portugal introduced its Golden Visa program in 2012 and has already issued more than 10,300 visas. In May 2022, the country reported a staggering 94% increase in visas granted.

While these programs offer many advantages (including low and even 0% tax rates), US citizen buyers beware. Leaving for a zero-tax jurisdiction while being a US citizen is akin to “saving from Peter, simply to pay Paul”. This is very important to remember before packing your bags. Obtaining preferable residency status abroad doesn’t mean throwing your US passport in a drawer and simply forgetting about it. American citizens are always taxed on their worldwide income and still have US tax filing obligations until their US citizenship is terminated correctly. If not done the right way, one can be subject to tens of thousands of dollars in failure-to-file penalties, as well as an exit tax and covered expatriate status. Don’t start that new chapter of your life buried under a mountain of tax and legal problems.

If one truly wants to take advantage of the low tax options that a Golden Visa program provides, they should renounce their US citizenship before leaving. Paying a 0% income tax rate in Portugal for the first ten years means nothing if you’re still paying 20%-35% in US taxes. Remember, the US is one of two countries that taxes one’s worldwide income on citizenship, not just residency.

Get started on the right foot. Our renunciation practice group is the largest in the world and continues to represent more and more individuals who are jurisdiction shopping for low tax regimes to call home, and need their US status properly addressed. Portugal is no exception. In most cases, we have timed the termination of their US citizenship to the date they depart for their new country of residence (one with a much lower tax rate). Once you become a resident of Portugal (or any other country that offers a special low-tax visa program), you’ll want to immediately eliminate your US tax reporting and filing obligations to take full advantage. That makes it much easier to enjoy your Douro wine in Lisbon while staring out at the North Atlantic.

Whether it’s to apply for a Golden Visa program or to simply eliminate one’s US tax burden, renouncing one’s US citizenship is a very important and personal matter for US expats and their families. The implications must be carefully discussed before any decision is made. Our firm fully understands the importance of renouncing our client’s US citizenship the right way.

If you or a family member is a US citizen or green card holder considering renunciation, we invite you to visit our dedicated webpage for more information. This page also contains links to register for our upcoming renunciation webinars. You can find one tailored to your geographic location in our events listings. These webinars thoroughly review everything you need to know about the US citizenship renunciation process, and available options should you decide to take the next steps.

Click here to view our upcoming Renunciation Webinars and register

If you would like to get the process started on addressing your US issues immediately (with legal fees in mind), please schedule a one-hour call or video conference consultation with me by:

• Signing up on our virtual calendar or
• Contacting Jeanine Wilk at jwilk@moodystax.com or 403-693-5124