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Saturday, May 12, 2012

Facebook Founder Renounces U.S. Citizenship

It's official - U.S. Congresswoman Michele Bachman has turned in her Swiss passport.  It's worth noting here that her husband retains his dual citizenship which means that Ms. Bachmann will have certain rights as the spouse of a Swiss citizen - the right to reside, for example, in Switzerland if the couple chooses to relocate one day.

And in other news, it turns out that Eduardo Saverin, one of the founders of Facebook, renounced his U.S. citizenship in 2011.  Mr. Saverin was born in Brazil, came to the U.S. to study, became a citizen and then left for Singapore where he plans to reside indefinitely. One can hardly quibble with his choice of destinations - Singapore (and other places in Asia) are hot these days.

As you can imagine the reaction in the U.S. to this news is shock and anger.  The reaction of an American abroad like me is resignation mixed with empathy.  Not trying to be a "donneur de leçon" here but we have been warning homelanders (to no avail) that the new FATCA rules, the "FBAR Fundraiser" and citizenship-based taxation were going to push many Americans outside the U.S. to renounce their citizenship.  Well, here we are, folks, and I personally think 2012 will be even worse.

I can only imagine the nightmare Mr. Saverin would have trying to remain compliant with the U.S. tax and reporting requirements while living in Singapore.  My situation is relatively simple compared to his and I'm finding it to be quite a chore (pricey too).  And then there is the complete lack of any benefits or services for Americans overseas - something that might make those tax bills and piles of forms a bit more palatable. Finally, Mr. Saverin, who seems to be a very bright fellow, will undoubtedly start up ventures in his host country and, if he were to keep U.S. citizenship, he would have to pay taxes in Singapore AND the U.S.  

Under those circumstances (and given the fact that he does not intend to return to the U.S.) what possible interest would Mr. Saverin have in retaining his U.S. citizenship? On the contrary, by renouncing he not only will avoid all of the above hassles but as a non-resident, non-US citizen, he will not have to pay about 600 million in capital gains tax when he finally sells his Facebook shares. Fancy that - if you want to invest in the U.S., you are much better off 1. not living there and 2. not becoming a U.S. citizen/renouncing.  For a very good explanation of how this works see Phil Hodgen's blog post Why the Facebook Dude Expatriated.

Americans may be downplaying all of this but the situation is being watched closely by people in countries like France where proposals to tax expatriates are on the table.  Patrick Weil, the director of research at the prestigious CNRS, wrote this in a recent article in La Tribune:
Mais la proposition de Nicolas Sarkozy n’est qu’une demi-mesure, comme le montre l’exemple des États-Unis : les ultrariches peuvent non seulement changer de résidence, mais aussi de nationalité… Car lorsqu’un État soumet ses ressortissants à des impôts au-delà des frontières nationales, quel que soit leur lieu de résidence, ces personnes optent de plus en plus souvent pour un changement de nationalité. Les États-Unis, seul pays développé à imposer un impôt fondé sur la citoyenneté plutôt que sur le domicile, subissent ce phénomène.
(But Sarkozy’s proposal was only a half measure as the example of the United States shows: the super-rich can not only change their residency, but also their nationality. Because when a state insists on taxing its expatriates beyond national borders, whatever their host country, these people choose more and more often to swap nationalities. The United States, the only country to tax on the basis of citizenship, is experiencing this phenomenon.)
Precisely and perhaps the time has come for homeland Americans to wake up and smell the coffee.

For a round-up and intelligent commentary of the news about Saverin and another fellow who also renounced, head over to the Isaac Brock Society and see the following: 

Facebook co-founder renounces U.S. citizenship – Brilliant Dan Mitchell article

3 comments:

Matthew said...

One thing I don't understand is why is Facebook valued so much? It doesn't produce anything. I don't click any of the ads on its site.

Victoria FERAUGE said...

Hi Matthew, thanks for stopping by and leaving the comment. It's a mystery to me too. But then I've never understand why anyone would plunk down good money for a new car either. :-)

Victoria

Just Me said...

Oh, the last comment to Matthew hurt. LOL Speaking of new cars, I just did that for the first time since 1985. A new Elantra. Totally non logical act, and without a real need. A gift for my wife for her commute in Seattle, but that is faint justification. Go figure. :)