Wealthy Americans renouncing their U.S. citizenship and taking up residence in The Bahamas to escape “the long reach” of the Internal Revenue Service, may find the move was futile.
A bill passed in the U.S. Senate last week is seeking to impose an exit tax on wealthy individuals who become tax exiles. The measure, attached to a Bill giving tax breaks to military personnel, would impose a tax on the market value of assets exceeding $600,000 on people who met tax or net worth levels who leave the country to become foreign citizens.
An estimated 250,000 Americans quit their homes annually, but most are not considered “true tax exiles”. The Bahamas is home to many wealthy Americans, who have major investments in retirement homes and businesses.
According to the April 3rd edition of the Financial Times, Sir John Templeton, a Bahamian citizen, saved more than $100 million dollars in taxes. Sir John, who made a name for himself as a fund manager, was born in Tennessee, USA, but moved to The Bahamas in 1969. He obtained British citizenship before moving here.
Sir John, who is recovering from heart surgery at his Lyford Cay home, told The Guardian on Thursday that the U.S. Senate bill would not apply to him.
A U.S. Embassy spokesman said it would be premature to discuss how the proposed Bill would impact Americans living in The Bahamas, as the measure has not as yet become law.
Managing Director of Credit Suisse Trust Ltd., Andrew Law, said that if Americans want to leave their country, they have to make sure their taxes are in order before they leave.
“More and more countries are taking that approach,” he added.
Asked his opinion as to why Sir John’s name was mentioned in the Financial Times, Mr. Law said that he happened to be an example of someone who has moved from one country to another and had renounced his citizenship.
Asked whether The Bahamas would be called on to help persuade “exiled Americans” to pay their outstanding taxes, Mr. Law said that The Bahamas would not promote itself as an irresponsible country.
Those individuals deemed wealthy would also be liable to pay federal estate taxes of up to 50 per cent on assets over the $600,000 threshold. Senate law makers estimated that the levy would raise $700m to help offset $1.1 billion dollars in military costs.
The Senate measure defines a “wealthy” person as someone who has an annual tax liability of $100,000 for the five years preceding a renunciation of citizenship, or a net worth of more than $500,000.
Under a U.S. Expatriate Law passed in 1966, these individuals are subject to ordinary income tax on U.S.- source income for 10 years and are also subject to a U.S. estate and gift tax during the 10-year period.
Critics of current, and pending U.S. tax laws, have pointed out that that nation is the only one in the world that seeks to tax its citizens no matter where they relocate, and irrespective as to whether or not they spend time in the U.S. or hold assets there.
By Lindsay Thompson, The Nassau Guardian
