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More and more American expatriates are renouncing their citizenship as a result of the crackdown in foreign tax regulations. The number of US expats filing their incomes fell by 65 percent in the second quarter of 2015, according to the US Treasury Department.
“Many people have been getting caught up on their US tax filings and then renouncing,” said Andrew Mitchel, an international tax lawyer who analyzes Treasury Department data, to CNBC.
The trend has accelerated since the Treasury Department and the Internal Revenue Service began to enforce tax rules more aggressively for American expatriates. Under the existing law US citizens must file if they keep foreign accounts of more than $10,000 in total during the year.
A US citizen’s worldwide income is subject to US income tax no matter where he or she resides. The Foreign Account Tax Compliance Act is aimed to ensure that the Internal Revenue Service acquires information on accounts held abroad by American taxpayers at foreign financial institutions.
The crackdown was initiated after the Swiss global financial company UBS was accused of helping US citizens to hide money abroad. UBS paid $780 million to the US and disclosed information on over 4,000 accounts.
The penalty for unintentionally failing to declare a foreign bank account is $10,000 per year. The taxpayers can either minimize taxes or keep US residency.
The Treasury Department reported 1,335 expatriates in the first quarter of 2015, with the number falling to 460 in the second quarter. This means the number of expatriates reporting to the US Treasury has fallen by two-thirds.