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American Expats Lobbying For Residence-Based Taxation

By Hans Esser, for ExpatBriefing.com
08 December, 2016


In a recent proposal, American Citizens Abroad (ACA) has set out a detailed description of its proposal for the enactment of residency-based taxation (RBT), rather than the existing citizenship-based taxation (CBT) system, for American expats.

Under the current CBT, Americans abroad remain subject to US taxation as though they were still US residents. Under RBT, only US residents –whether Americans or foreigners – would be subject to US income, estate, and gift taxation, while Americans resident abroad would be taxed under essentially the same rules applicable to nonresident aliens.

ACA therefore proposes that, as part of a general tax reform package, an election should be provided to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions – for example, a minimum three-year period of residence abroad.

ACA believes that the next US Congress will consider amending the US tax code to an RBT approach to taxing individuals, as the United States is the only industrialized country that still taxes using a CBT regime.

It has previously said lawmakers should enact RBT because it would reduce compliance burdens for expatriates, provide more efficient taxation, and improve competitiveness. ACA has pointed out that, according to the National Taxpayer Advocate, about 82 percent of all Americans abroad owed no US taxes, and that CBT causes hardship to Americans abroad in terms of the cost, time, and legal risks involved in complying.

However, ACA has noted that, while a change to RBT has been discussed for a long time, what exactly it might entail in the way of changes to the existing tax code has not been spelled out. It has therefore laid out a side-by-side analysis between the two systems, which then can be examined and modified, and to provide a starting point for developing revenue estimates on the cost of switching from CBT to RBT taxation.

Tags: Individuals | Expatriates | Inheritance Tax | Compliance | Tax | Tax Compliance | Gift Tax | United States | Tax Reform | Individual Income Tax | Expats | Tax





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Donât get me wrong, ACA is a God sent organisation if it werenât for them RBT wouldnât even be a point of discussion now. However, in this situation they are wrong, they claim itâs a starting point, but RBT is RBT and there is no starting point, perhaps they just want to make CBT less aggressive by imposing a limitation of 3 or 5 years on it, its definitely better then what we have now, but it is not RBT. Anywhere else RBT means more than 180 days outside the country in any fiscal year, simple and without unintended consequences.

Chris Schultz, 11 months ago.

The truth is RBT has to mean RBT, it cannot be a new concept, it wonât work, if you start adding limitations it will generate lots of unintended consequences. Just copy and paste from Canada or UK and you will get something that works.

Chris Schultz, 11 months ago.

You canât reinvent the wheel, RBT is a well defined concept, all other countries in the world practice it in the same way, the only way that works, ACA is changing the concept of RBT by including limitations that other countries found out to be counterproductive, the âperiodâ of 3 or 5 years before being eligible is more trouble than it its worth, think about the American who is living abroad for a long time who needs to go to the US for a job, he wouldnât go if he had to wait 3 years again upon going back abroad before being treated as non-resident for tax purposes, this is one example, there are several others that just wonât fit in this space.

Chris Schultz, 11 months ago.

Unfortunately things like exit tax and a period abroad before you can apply for RBT simply donât work. Expats are not only facing double taxation, like for example pension plans abroad end up being a liability because it generates no foreign tax credit, but also problems at work, you canât be a CFO for a foreign corporation, nor a broker dealer representative, its incompatible with filling FBARS, and other forms, foreign corporation just donât use Americans.

Chris Schultz, 11 months ago.


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