Economic Second Citizenships: The Time is Running Out
John Templeton, one of the most successful investors of all time, saved himself approximately $100 million in taxes in 1992…
Templeton sold his successfully money management business that year, but the IRS had no legal claim to collect. You see, Templeton is a highly spiritual man and is immensely wealthy. And he’s also extremely philanthropic, as he plans to have given nearly all his money away before he leaves us. But John Templeton, as successful a man as you’ll find anywhere, made an interesting choice along the way...
Templeton chose to be in control of who the beneficiaries are of his philanthropy; of how his wealth is distributed. He understood that the U.S. is virtually the only country in the world that imposes significant income and death taxes on the worldwide income of every citizen – even if that citizen hasn’t lived here for many years. And ultimately, he didn’t want the U.S. government to take over half of his wealth to do what it wished. He wanted to control the beneficiaries of his immense success, to make sure that it would be put to its best use.
So, like the great investor that he is, John Templeton weighed the risks and the rewards heavily. After all, the thought of expatriation is not to be taken lightly. But ultimately, he decided to give up his U.S. citizenship. He became a citizen of the Bahamas, which imposes no death taxes and no income taxes.
He’s now lived a comfortable life for many years at Lyford Cay on Nassau, with neighbors like Sean Connery. He’s kept himself very busy for a man in his eighties, writing spiritual books, showing up at the posh Templeton money management office near his home on occasion, still investing smartly (he shorted many dot-coms right at the top), and giving his money away.
The Window of Opportunity to Follow in Templeton's Footsteps is Closing Fast
A number of countries in the world, including the US, offer expedited residency and even citizenship in exchange for economic investment into their country. However, that practice may be coming to an end in the near future, as the US and Europe look for ways to crack down on money laundering, terrorism and tax evasion spurred by the recent events of Sept. 11, 2001.
So time is fast running out. But fortunately, there are still ways to “test the waters” of citizenship, without having to go as far as Templeton did – by starting out with a second citizenship. Therefore you can gain many of the benefits, whether it’s financial privacy, the ability to live and work abroad freely (as an American passport may make you a target in some places these days), asset protection, etc.
In some specific cases like Templeton’s, individuals decide for economic or political reasons to actually give up their citizenship of birth, once they have obtained a second citizenship. While governments (especially the U.S. government) do not like this practice, it is still the right of a free person in a free society to decide for themselves whether they want to maintain one, two or even more citizenships, including the citizenship of their birth.
America has welcomed others from around the world for over two hundred years. These immigrants gave up their citizenship to come to the U.S. Yet United States is tightening the screws on US persons who expatriate, by requiring ten years of tax compliance beyond the date of expatriation.
Fortunately, most US citizens who acquire second citizenship, do not intend to expatriate and are therefore not subject to the special ten-year compliance laws. For those who do wish to expatriate, careful tax planning, including the use of offshore trusts, limited partnerships and corporations can reduce or eliminate taxation during the compliance period. For those Americans who do keep their US passport, normal US tax laws continue to apply.
But what’s worse, the U.S. (and especially the OECD, a group of mostly European developed nations) have really put the screws to tax-friendly jurisdictions, primarily in the Caribbean. So in short, your ability to acquire “fast track” foreign citizenship is rapidly running out, as the small Caribbean governments have come under immense pressure…
The Turks & Caicos have effectively eliminated their “Belonger laws” by requiring unanimous consent of all top ministers to grant the status to foreigners. A number of other jurisdictions from Ireland to Trinidad, from Uruguay to Grenada from St. Vincent’s to Dominica are all in various stages of tightening or eliminating their programs. And in Belize for example, Parliament has introduced a bill that has already passed the first reading to eliminate Belize Economic Citizenship by early next year.
With the world tightening its belt in response to terrorist acts, second citizenships may soon be a relic of the new reality. If you have considered acquiring second citizenship in the past, but have procrastinated for any reason, the time to act is now.
Copyright 2002 Nagel & Associates, LLC