Anexpatriation tax oremigration tax is atax on persons who cease to betax-resident in a country. This often takes the form of acapital gains tax against unrealised gain attributable to the period in which the taxpayer was a tax resident of the country in question. In most cases, expatriation tax is assessed upon change ofdomicile orhabitual residence; in the United States, which is one of only three countries (Eritrea and Myanmar are the others) to substantively tax its overseas citizens, the tax is applied uponrelinquishment of American citizenship, on top of all taxes previously paid. Australia has "Deemed disposal tax" which in essence is exit tax.
"Deemed disposal" occurs when someone stops being an Australian resident. For tax purposes, they are deemed to have disposed of assets that are not taxable Australian property for their market value.[1]
Canada imposes a "departure tax" on those who cease to be tax-resident in Canada. The departure tax is a tax on the capital gains which would have arisen if the emigrant had sold assets after leaving Canada ("deemed disposition"), subject to exceptions.[2] However, in Canada, unlike the U.S., the capital gain is generally based on the difference between the market value on the date of arrival in Canada (or later acquisition) and the market value on the date of departure.[3]
Eritrea charges a 2% tax on income to allEritreans who live outside Eritrea. This measure has been criticized by theDutch government, which expelled a top Eritrean diplomat because of it.[4]
According to the law"L'impôt sur les plus-values latentes en cas de transfert du domicile fiscal hors de France" Article 167 bis Code général des impôts[5] there is a rule forcing french tax-subjects to pay a tax if they move abroad to certain countries and not return promptly.France's exit tax applies to individuals who have been tax residents in France for at least 6 of the last 10 years before their departure and have ownership of more than €800,000 worth of shares or other financial instruments, or are holding more than 50% of the shares in a company. A deferral of payment is possible if the person relocates to an EU/EEA country or a country with a tax treaty with France that includes administrative assistance. If the individual retains the assets for a certain period (usually 15 years) or returns to France to become a tax subject, the tax may be canceled.
In December 1931, theReich Flight Tax was implemented as part of a larger emergency decree with the goal of stemmingcapital flight during the unstableinterwar period. After the Nazisseized power in 1933, the Nazi government largely used the tax to confiscate assets from persecuted people (mostly Jews) who sought to fleeNazi Germany.[6]
Today, when moving out ofGermany company shares (ownerships of >1%) will bevirtually sold and capital gain taxed based on the current value.[7]
TheNetherlands has treaties withBelgium andPortugal permitting them to charge emigration tax againstDutch people who move to those countries. The aim is to impose a tax on persons who move abroad and cash out on the tax-free appreciation of their Dutch pensions. However, in 2009, theSupreme Court of the Netherlands ruled that theTax and Customs Administration could not impose an emigration tax on a Dutch man who moved to France in 2001.[8]
Norway imposes an emigration tax on unrealised capital gains as it appears on the day of departure if the unrealised gains exceeds 500,000NOK. The tax may be deferred without collateral if the subject takes residence in anotherEEA member state, and with collateral otherwise. If the taxed gain is not realised within a five-year period, it will be assumed that the emigration was not motivated by tax purposes and the tax will be dismissed or refunded.[9][10]
The current South African exit tax regime works in concert with South Africa'sforeign exchange controls. A person who is a resident ofSouth Africa as defined under the exchange control laws (someone who is resident or domiciled in South Africa) may change status to become an emigrant, if the person is leaving theCommon Monetary Area (South Africa,Namibia,Swaziland, andLesotho) to take up permanent residence in another country. A single emigrant may expatriate up toR4 million of assets without exit charge, while a family is entitled to twice that amount. The emigrant must declare all worldwide assets to an Authorised Dealer of theSouth African Reserve Bank, and obtain a tax clearance certificate from theSouth African Revenue Service.[11]
In December 2014, a new 'Exit Tax' was announced which is governed by Article 95 of the Income Tax Act. This applies to departing Spanish resident taxpayers with shares worth more than four million euros or one million if they hold a stake of 25% of a single business and then transfer their habitual residence outside Spain if they have previously lived in Spain 10 of the last 15 years.[12]
Unlike all other countries with the exceptions of Eritrea andHungary (with caveats), theUnited States taxes its citizens on worldwide income, even if they are a permanent resident in another country.[13] To deter tax avoidance by abandonment of citizenship, the United States imposes an expatriation tax on high-net-worth and high-income individuals who give upU.S. citizenship. The tax also applies to lawful permanent residents orgreen-card holders who are considered "long-term residents." TheInternal Revenue Code defines a long-term resident as any individual who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the expatriation occurs.[14]
The first U.S. income tax to include U.S. citizens living overseas dates to 1862, but the first law to authorize taxation of former citizens was passed over a century later, in 1966. The 1966 law created Internal Revenue CodeSection 877, which allowed the U.S.-source income of former citizens to be taxed for up to 10 years following the date of their loss of citizenship. Section 877 was first amended in 1996, at a time when the issue of renunciation of U.S. citizenship for tax purposes was receiving a great deal of public attention; the same attention resulted in the passage of theReed Amendment, which attempted to prevent former U.S. citizens who renounced citizenship to avoid taxation from obtaining visas, but which was never enforced.[15][16] The American Jobs Creation Act of 2004 amended Section 877 again.[17] Under the new law, any individual who had a net worth of $2 million or an averageincome tax liability of $124,000 for the five previous years (adjusted annually for inflation)[18] who renounces his or her citizenship is automatically assumed to have done so fortax avoidance reasons and is subject to additional taxes. Furthermore, with certain exceptions covered expatriates who spend at least 31 days in the United States in any year during the 10-year period following expatriation were subject to US taxation as if they were U.S. citizens or resident aliens.[19]
A bill—which failed to advance to the Senate—entitledTax Collection Responsibility Act of 2007 was introduced during the 110th session of congress in July 2007 byCharles B. Rangel. It contemplated, among others, a revision of the taxation of former American citizens whose citizenship officially ends. In particular, all property of an expatriate up to certain exceptions would be treated as having been sold on the day before the expatriation for its fair market value with any gain exceeding $600,000 classified as taxable income.
TheHEART Act, passed on 17 June 2008, created the newSection 877A, which imposed a substantially different expatriation tax from that of the earlier Section 877.[16] The new expatriation tax law, effective for calendar year 2009, defines "covered expatriates" as expatriates who have a net worth of $2 million, or a 5-year average income tax liability exceeding $139,000, to be adjusted for inflation, or who have not filed an IRS Form 8854[20] certifying they have complied with all federal tax obligations for the preceding 5 years. Notwithstanding the above, certain dual citizens by birth and certain minors as defined inSection 877A(g)(1)(B) are not considered "covered expatriates." Under the new expatriation tax law, "covered expatriates" are treated as if they had liquidated all of theirassets on the date prior to their expatriation. Under this provision, the taxpayer's net gain is computed as if he or she had actually liquidated their assets. Net gain is the difference between the fair market value (theoretical selling price) and the taxpayer's cost basis (actual purchase price). Once net gain is calculated, any net gain greater than $600,000 will be taxed as income in that calendar year. The tax applies whether or not an actual sale is made by the taxpayer, and whether or not the notional gains arise on assets in the taxpayer's home country acquired before immigration to the United States. It is irrelevant that the gains may have partly arisen before the taxpayer moved to the U.S.
The new tax law also applies todeferred compensation (401(a), 403(b) plans,pension plans,stock options, etc.) of the expatriate. Traditional or regular IRAs are defined as specific tax deferred accounts rather than deferred compensation items. If the payer of the deferred compensation is aUS citizen and the taxpayer expatriating has waived the right to a lowerwithholding rate[clarification needed], then the covered expatriate is charged a 30%withholding tax on their deferred compensation. If the covered expatriate does not meet the aforementioned criteria then the deferred compensation is taxed (as income) based on the present value of the deferred compensation.
In 2012, in the wake ofEduardo Saverin's renunciation of his citizenship, Sen.Chuck Schumer (D-NY) proposed theEx-PATRIOT Act to levy additional taxes upon citizens renouncing their citizenship.
