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U.S. citizens cannot use tax treaty tiebreakers. Note that U.S.
tax treaties typically contain a provision called a savings
clause that prevents individual U.S. citizens from receiving
the benefit of a tax treaty. U.S. citizens cannot use a tax
treaty to sever tax residency with the United States.
POINT 6:
UNDERSTAND THE COSTS
OF SEVERING TAX RESIDENCY
How might exit/departure taxes impact the immigration/
migration decision? Gone are the days when individuals
could simply sever tax residency with a country and not pay
some kind of exit/departure tax. An increasing number of
countries are requiring a payment to sever tax residency. The
general principle is that people who sever tax residency with
a country are deemed to have sold their assets at fair market
value. This often results in a tax that is payable on a pretend
gain as a result of severing tax residency from the country.
Canada and Australia are examples of countries that impose
departure taxes. The departure tax is based on gains that
accrued while the person was a tax resident of the country.
In practice, for Australia and Canada, this means that the
departure tax is payable only on gains that accrued while the
person was living in the country.
The United States imposes an exit tax that is triggered by
renouncing U.S. citizenship. In practice, this primarily affects
U.S. citizens who are living in other countries. Hence, the
United States exit tax is paid primarily on gains accrued
when the person was not living in the United States but was
living in another country. Before you rush to apply for the
U.S. EB-5 program, understand that the United States also
imposes exit taxes on green card holders who are long-term
residents, meaning that they have been permanent residents
for eight of the last 15 years.
POINT 7:
BE AWARE THAT DEPARTURE TAXES
CREATE THE POSSIBILITY
OF DOUBLE TAXATION
Departure and exit taxes have the potential to subject an
individual to double taxation. For example, an asset can be
subject to a deemed capital gains tax when one severs tax
residency with one country and could later be subject to an
actual capital gains tax when the person is a tax resident of
another country.
It is becoming increasingly common for tax treaties to
provide relief against this kind of double taxation.
POINT 8:
INVESTIGATE HOW TAX TREATIES
MIGHT BE USED TO MITIGATE
THE IMPACT OF EXIT/DEPARTURE TAXES
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