U.S. Lawmakers Consider Proposal to Eliminate Taxation Based on Citizenship for Americans Living in Switzerland
Here's a Fresh Take:
Hey there! US Rep. Darin LaHood, a Republican from Illinois, recently introduced a bill to Congress: the Residence-Based Taxation for Americans Abroad. This bad boy seeks to overhaul the US tax code, offering American expats an optional residence-based tax system.
The proposed legislation, due for inclusion in a larger tax package expected in 2025, during President-Elect Donald Trump's second term, is a response to Trump's earlier support for ending the double taxation of overseas Americans as stated in an October campaign video.
Curious about the nitty-gritty? The bill aims to provide American citizens abroad the option to be recognized as 'non-resident citizens' through a certificate of non-residency, minimizing foreign income tax. US-sourced income, however, would still be subject to US taxes.
The bill also takes aim at FATCA-related banking issues facing Americans abroad. According to a press release from Representative LaHood's office, this piece of legislation would smooth out banking for Americans living abroad, as FATCA (passed in 2010 to combat money laundering) tends to cause some inconvenience.
The US is one of the few countries employing a citizenship-based tax system, which demands all Americans to file an annual income tax form, regardless of their location. Though many aren't taxed in both the US and their country of residence due to cost-saving measures like foreign-earned income exclusion, foreign tax credits, and bilateral tax treaties, proper filing can still be costly and time-consuming.
If you're wondering who can opt for residence-based taxation, under this bill, there are qualifications, including proving US tax compliance for the past five years and demonstrating a long-term intention to reside abroad. If a person returns to the US within three years, they must revert to the conventional tax system.
The bill also outlines a 'departure tax' mechanism to discourage abuse. Not everyone will face this tax, though - exceptions include people whose net worth is below $13.61 million (as of 2024), or those who have lived outside the US for three out of the last five years, or who haven't been residents since March 2010 or since turning 25 years old.
Eager for more? Check out why Americans in Switzerland renounce their US passports or if Trump's tax relief will truly make a difference for Americans in Europe!
The Residence-Based Taxation for Americans Abroad, introduced by US Rep. Darin LaHood, is a significant business and finance related move in politics, as it addresses the longstanding issue of doubly taxing overseas Americans. The proposed bill, expected to be included in a larger tax package in 2025 during President-Elect Donald Trump's second term, aims to provide American citizens abroad with the option to minimize their foreign income tax and streamline banking for Americans living abroad, especially in relation to FATCA, by offering a certificate of non-residency.
