Moving Out of the Country: Renouncing Citizenship
Here is a video from Andrew Henderson of Nomad Capitalist, one of the resources I recommend for five flags and international living / business issues. He’s just renounced his US citizenship, something I’ve mentioned a few times before.
The video is 45 minutes long and I strongly recommend it if you’re an American looking at creating some sort of five flags lifestyle, now or in the future. (If you’re not an American, it’s purely optional, since non-Americans usually have less reasons to renounce, because of America’s uniquely horrendous tax laws and paperwork requirements.)
You can do what I always do with YouTube videos and play it at 1.5X speed which makes the video just 33 minutes or so.
While he touches on the technical specifics, Andrew covers mostly the emotional aspects of renouncing citizenship. Renouncing citizenship is a pretty big deal. It’s only something you should do when you know with 100% certainty you want to do it and it’s worth doing. In most cases, it probably isn’t.
Andrew only spends five or six days a year in the USA, so for him, renouncing makes sense. Why pay all those damn taxes and get involved in all the banking paperwork if you’re not using any of the resources of the USA in your day-to-day life? Makes sense to me.
He said the entire process of renouncing took about $2300 and two and a half months. I was surprised it moved that quickly. Pretty nice.
He talks about not renouncing just because you’re pissed off or making an emotional decision. He’s right about that. Renouncing your citizenship just because you’re mad at the US or disagree with its politics is one of the stupidest things I can think of. Clearly I have a problem with just about everything the government of my country does, but that doesn’t factor into whether or not I will renounce my citizenship down the road.
I don’t want to renounce my citizenship. I really don’t. I hate my government, but I love my country, and I feel a much stronger connection to America than Andrew does. Most of my life philosophies of individualism and freedom are based right out of American values, which are largely unique in the world. I also have children and a wife (Andrew has neither of these) and will have grandchildren in the next ten years. This keeps keeps me tied to the USA, at least to some degree, for at least the mid-term future.
However! Both of my kids strongly want to move out of the USA as well. My daughter is always talking about moving to Thailand or New Zealand, and my son is spending an entire month in Mexico as I type this. If my kids actually move out of the USA some time in the next 10-20 years, the only strong family ties I will have here will be my parents, who are elderly and likely won’t be alive by then. Granted, Pink Firefly has family here she’s close to (mostly her parents, who are younger than my parents) and that needs to be factored in as well.
Will I eventually renounce? Probably, but it will likely be in a very long time. If I do, it will be the last step in my five flags plan, which is currently a 10-15 year project. My goal is to get to the point where I can renounce if I choose to. This means these items must be in place first:
1. I must have not one, but at least two other passports in addition my USA one.
2. I must be moved out of the USA.
3. I must be fully settled in my new location(s), which very well may take several years after I move out, since it may take time to get my footing and find out exactly which international living configuration makes me the happiest.
4. Certain financial aspects must be in place.
Then, at that point, I would renounce only if my current tax cost and paperwork hassle was worth the travel hassle of renouncing. If I renounce my American citizenship, I would still be able to visit the United States, but I would have to do so as a foreigner, meaning I’d likely have to get travel visas every time I visited, and there would be time limits on the amount of time I could stay. Therefore, this hassle would have to be “worth” me renouncing, and thus saving me money on the tax burdens and banking paperwork unique to American citizens living abroad.
Will things get to that point? Based on where I see the USA going, probably. But I don’t know for sure. The point is I’ll have the option at that point if I need to. I would be doing it for purely financial and logistical reasons, nothing else. I’m not “mad” at the United States (I was when I was much younger, but not now).
Andrew mentions that he feels much more relaxed now that he’s no longer a citizen of the US. Every time he sees a news report about the latest stupid thing our government or voters are doing, he just doesn’t care; it’s no longer his cross to bear. He feels like it’s a weight off his shoulders.
That sounds very compelling to me. However, I sort of feel like that already. Every new problem the USA encounters, I view it more like watching a movie (specifically, a dark comedy) than something I’m personally a part of. Though I agree this sense of ease would increase if I was no longer a citizen.
Paperwork is the other thing. The amount of legal, banking, and tax paperwork required when you are an American citizen living a five flags lifestyle is gargantuan, to the point of insanity. This all vanishes when you’re no longer a citizen.
I don’t live the five flags lifestyle right now, and I’m reasonably confident that Andrew makes more money than I do (though I could be wrong about that), so while this paperwork aspect doesn’t affect me yet, it certainly will when I start fully offshoring everything. As you know if you’ve read my book, extreme paperwork requirements violate one of the standards of having an Alpha 2.0 business. It can’t be tolerated long-term, at least in my strong opinion.
The last factor, and the biggest one, is taxes. Living the Alpha 2.0 lifestyle, I already pay a very low percentage of my overall income in taxes, legally. While the typical American pays 51-73% in total taxes, I pay around 17%, and do so 100% legally, and while still living in the USA most of the year. By moving out of the country and legally setting up my five flags, my goal is to get this down to 4% or less, ideally 0% but I’ll take 4% if I have to. (Andrew was able to get his tax rate down to 1%.)
My point is that 17% really sucks, but it isn’t such a pain point that it really bothers me… yet. The problem is that as my income goes up, that tax rate tends to go up as well. For most of the last many years, my tax rate was 7-8%, so it’s more than doubled since then as my income has increased.
So this topic is a complicated one, all the more reason why, if I do it, I’m putting it way off into the future to give me plenty of time to know if it’s the right decision for me at the time. That’s how you need to look at this stuff.
And again, if you’re not an American citizen, your country doesn’t tax you regardless of where you live, and international banks don’t mind dealing with you because of FATCA laws, so you likely never need to worry about this. Congratulations!