Expatriation: The Ultimate in Asset Protection (With Caveats)

When Facebook co-founder Eduardo Saverin announced in 2011 his intention to renounce his United States citizenship, the financial news media speculated on the young Brazilian-born entrepreneur's decision and its potential effect on taxation of his $2.2 billion net worth.

What Saverin accomplished is known in asset protection circles as expatriation. Saverin is hardly the only U.S. citizen to have physically and legally expatriated; former Ford Motors director Michael Dignman and Campbell Soup heir John Dorrance III come to mind.

Saverin reportedly took the route of expatriation to reduce the amount of capital gains taxes owed on his Facebook holdings after the goliath social network completed its initial public offering (IPO) on Wall Street. Saverin had relocated to Singapore at the time, and he was subject to U.S. taxation, as are all American citizens around the world.

The process of expatriation and renouncing citizenship is the ultimate offshore tax strategy insofar as future income and earnings are concerned, but there are some caveats to consider. There is the issue of "no escape from prosecution" found in Section 349(a)(5) of the U.S. Immigration and Nationality Act, which makes reference to tax and military obligations. In essence, Americans are subject to taxation on any assets held or income earned up to their last day as U.S. citizens and may be required to file a final tax return.

Other North American citizens may face more obstacles when they attempt to expatriate. Section II(9)1(a) of Canada's Citizenship Act, for example, requires that those planning to surrender their citizenship do not end up stateless; this means that Canadians should become naturalized in another country before renouncing their citizenship.

In the end, expatriation is an option for high net-worth individuals who seek to completely free themselves from taxation systems that follow them around the world.
For more information on global asset protection visit www.nagellaw.com or call Joel Nagel at 412-200-5115.