US citizens living overseas who have suffered financially as a result of citizenship-based taxation and the Foreign Account Tax Compliance Act (Fatca) have been offered a ray of hope by the US Republication party.
The Republicans put forward a bill – the Tax Fairness for Americans Abroad Act of 2018 – to amend the current income tax system, just before the Democrats took over the House of Representatives on 3 January 2019.
Under the current regime, any American citizen is required to pay income tax on their earnings, both domestic and foreign.
According to the proposed bill, non-resident citizens should receive exemptions from paying tax on both their foreign earned and unearned income.
George Holding, the Republican congressman for North Carolina who tabled the bill, said to the Society of Estate and Trust Practitioners (Step) that the current taxation system was “archaic” and that many Americans, especially those residing in Canada, were at risk of double taxation.
Introduced in 2010, Fatca requires foreign financial institutions to identify US taxpayers among their customers and notify the US authorities. It was intended to identify potential tax avoiders and evaders.
Its impact, however, has seen US expats treated like pariahs by some financial institutions.
Qualified non-resident citizens
The bill classifies a “qualified non-resident citizen” as someone who:
- Is a US citizen
- Has a tax home in a foreign country
- Has complied with US tax laws for the previous three years, and
- Has been a foreign resident either for an entire taxable year or for at least 330 full days during the taxable year
“It’s important for the community and those working on the legislation to have a complete outline of the various areas of the current tax code that might be affected by the bill and how these changes might ‘play out’,” said Charles Bruce, legal counsel for American Citizens Abroad (ACA), an advocacy group for US expats .
Marylouise Serrato, executive director of the organisation, said: “ACA is obviously very much interested in helping develop and enact a final bill. From work on background subjects and then the drafting details, ACA is now turning to pushing for adoption of residency-based taxation.”
ACA provided estimates regarding the residence-based model that the bill proposes, and has been working with the offices that have presented it to the House of Representatives.