This blog is about the series of events which changed my life. It is long, full of details and complicated. I would be pleased if you read the whole thing to the end.
In the previous blog Where You Came From I explained that I was born in Chicago, USA but I am German.
It used to be a great privilege to have US citizenship and a US passport. In 2010 this changed dramatically.
My life became a living hell all because of a US passport.
The details about how my life descended into "hell" are later in this blog, but first some background information is necessary for you to understand my situation and the choices I had to make.
Fact #1: You become a US citizen automatically when you are born in the United States.
Fact #2: There are 193 sovereign states (countries) on this planet. Only two of them tax their citizens on their worldwide income:
The United States of America and
... wait for it...
...you will never guess it...
Yes, that bitterly poor African country governed by a one-party dictatorship and the mighty democratic United States both treat their citizens as tax slaves.
All other - 191 countries - tax you according to residency. If you live in that country, you pay taxes to that country. If you leave, you pay taxes elsewhere. Not the USA.
Fact #3: As a US citizen you are required every year to file a tax return with the IRS. And you have to report your financial holdings to the US Treasury.
It doesn't matter that you don't live in the US, never visit the USA, or that you work for a non-US company and already pay taxes and report financial holdings to the country where you live. You still have to file in the US on your income in another country. For clarity: it doesn’t mean you were taxed twice, ratheryou were taxed differently. In US you can deduct mortgage interest, in Germany only if you rent the property. Incredibly complicated.
Each country does not respect the "tax-saving" programs for retirement of the other country. US withdraws taxes directly from German accounts including retirement schemes just as if they were regular investments.
In 2009 I got audited by the IRS. The myriad of various forms for foreign filers got to be too much and I had made a mistake.
I had to hire a very expensive multinational tax consultancy to get through the audit, because think about it - how many tax consultants in Germany know US tax law? After the experience with the audit, every year I paid two different tax consultants to prepare the tax forms for US and for Germany. At this point, I was now paying more for tax preparation than I was saving in taxes.
Each time I would ask myself, what do I really get out having a US citizenship when I live and work elsewhere? Will I ever live in the USA again?
It got worse. But at this point I still had no idea just how bad it could get. Like the frog in a pot of water which is slowly starting to boil.
In 2010, the US passed the FATCA (Foreign Account Tax Compliance Act). Because of it every US citizen not living in the USA has to complete the FBAR Report of Foreign Bank and Financial Accounts. It is mandatory for all accounts, even those accounts where I was not the account holder but just a beneficiary, for example, my husband's accounts.
The FBAR is the most powerful government document in the world. To get the same records in the US, law enforcement would have to get a subpoena.
Failure to file the information FBAR had more drastic penalties than if you failed to pay taxes. The penalty not to file the information:
...for a willful violation, the maximum penalty is the greater of $100,000 or 50% of the balance in the account at the time of the violation. For a nonwillful violation, the maximum penalty is $10,000. (source 1)
That is crazy. We're just talking about information, not about any taxes being due.
You are required to expose every single monetary cent that you have to a greedy US tax authority, all the details like account numbers, routing numbers etc. If you didn't provide all this private information, they would take 50% of the money in that account. On what basis were they allowed to do this? US government is all-powerful, and it was recently upheld as legal. Of course it was, it was a court in the United States, and you are a US citizen, bound by its laws.
The US is so powerful that it put a strangehold on all financial institutions in the world. The US required every single foreign financial institution in all other 192 countries to report everything on US citizens and to withhold US taxes in addition to any withholding that country might have from any interest bearing accounts. If they didn't do so, they could not perform any financial transactions in USA.
There was so much additional "paperwork" for all these institutions that they just decided not to have any US citizens as customers anymore .
There was no communication about FATCA, FBAR or any of this to the general public. When you live outside the US, you don't spend your free time looking up whether US tax laws have changed recently, and no one is informing you.
That is when the dam broke and within several weeks, very suddenly, without any warning, it became impossible to have a "normal" financial life as a US citizen living abroad.
That is when my life went directly to hell.
My German bank where I had been a customer for over 20 years, as well as other German financial institutions sent me letters informing me that my accounts would be closed in two weeks.
In the case of investments, I was to immediately sell off all my holdings (my retirement savings, just to name one example). If I didn't sell myself, the bank/financial institution would sell anyway and place the funds in a court-mandated account where I would have to employ a lawyer to get at my own money. How to pay those expenses when you do not have a bank account or access to your money? No answer to that question.
Overnight, my life was a nightmare. I had 2 weeks to find another bank or move to the US permanently. The second option I didn't take very seriously. Who could do that?
There was no one to turn to for help. The German government couldn't help, and the EU won't help. My US representative in Illinois, my last place of residence over 30 years ago? He wouldn't care about a citizen who doesn’t really live in his state. No taxation without representation, unless, you decide to live outside of the US - then, anything goes.
There was nothing I could do, and no where I could go. The clock was ticking everyday and I was starting to panic because already certain financial transactions weren't getting processed.
Eventually I found an online bank which would accept US citizens and managed to move all my money/investments within the last few days of the two-week period - it was as intense as in a Hollywood movie - will I get out in time and safely?
Those two weeks in financial hell changed my life. I didn't want the enormous hassle of being a US citizen anymore and I started to look into how I could get out of these obligations.
There is only way out: giving up the US citizenship. Forever. Irreversible.
There is a lot of paperwork and expense to get your renounciation processed, for example you must have the last five years of US tax reporting completed, all the FBARs and you have to have a lifetime asset assessment (how much money you will have in your lifetime). I had to have an accountant perform that calculation for me. The US charges an „exit tax“ on those giving up their citizenship if the estimate is over $2 million. Fortunately (in terms of paying taxes not so much about my financial outlook...) my assets would never come near millions.
My US passport was going to expire in 2012. I set that as my goal: be rid of the US citizenship by 2012. I will save the story of travelling to the USA from Germany and going through passport control as a no-longer US citizen for another blog.
In the process, I got to know a lot of "Accidental Americans" at my company and living in southwestern Germany. Globally, there is estimated to be somewhere between 2,8 and 6,8 million US citizens living abroad (source - 6)
An "Accidental American" is a person who was born in the US but identifies 100% as a citizen of another country. Usually they only lived in US as a baby, and couldn't even walk or talk when they left the US and thus never had a social security number or anything "citizen" like...many of them cannot speak English. Nonetheless they are required to file tax forms and the FBAR because they got US citizenship automatically when they were born in America.
Those people were hit the hardest. They had absolutely no idea they had any obligations to the country where they were born. Seriously, how could they? Every other country on the planet performs taxation based on residency. They could not believe they had to suddenly file the FBAR as well as the past 5 years of US income tax forms in order to keep the money in their accounts. The US government was about to take 50% of their money away from them. (source -4)
Incredible. But TRUE.
USA - what a country. Forget the 4th of July "land of the free", you are not financially free when you leave US territory because you stay a tax slave for the rest of your life or until you give up US citizenship.
I renounced my US citizenship on June 29, 2012. I wish I could say it was all over. But it's not. Still today, seven years later, I am denied financial accounts because of my "country of birth" although I am a German citizen (only, exclusively and most definitely not a US citizen anymore).
I really thought all my hassles would be over...nonetheless, I'm one of the lucky ones.
The latest change to US tax law under Trump has really hit some US citizens living abroad hard - like, destroy their lives hard. That law allowed a one-time tax on assets that U.S.-controlled businesses have accumulated overseas, whether or not they repatriate them to the United States.
Carrie is a 50-year-old, self-employed doctor living in Amsterdam. She is Dutch and was born in the US while her parents were living there for six months ... She is facing a tax bill of at least $107,000 which would wipe out her life savings. (source - 5)
Carrie and millions like her are facing a horrible financial fate due to the country of birth and there is very little they can do about it.