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Facebook Co-Founder Gives Up U.S. Citizenship (businessweek.com)
103 points by prs 1209 days ago | 98 comments



This has been a growing trend for a number of years. Changes in the US tax code, US laws, and the way the US government interacts with foreign banks has made increasingly difficult for US citizens, particularly those with assets, to live outside the US even if they are perfectly happy to pay taxes. Not only are foreign banks no longer willing to deal with Americans living abroad but in some cases complying with the aggressive US laws are in conflict with the laws where the people actually live. Naturally this is very frustrating to people who live overseas or who are married to citizens of other countries.

The way the US deals with taxes for Americans living overseas is gross overreach any way you look at it and the increasing difficulty of being compliant with US laws applied to people living outside the country is driving this. No other industrialized country treats citizens living outside its borders in this way and this reflects negatively on the US.

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You can't escape US taxation by giving up citizenship.

He will have to pay the exit tax instituted in the 2008 Heroes Earning Assistance and Relief Tax Act (HEART) on all unrealized gains he has worldwide because his net worth is likely greater than $2 million. I believe it is set at 30%.

As Facebook has announced the strike price, the value of the company and what his tax liability is, already has a very dollar value.

There used to be a ten year shadow for giving up US citizenship where you'd still have to pay US gain taxes for 10 years after you gave it up.

And the federal government has the incentive and the means to collect on someone who is a billionaire.

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The article says he actually gave it up last September, so the numbers might have been fuzzier then. Regardless, he's protected from tax on any subsequent rise in stock price. You can't escape past or current tax, but you can "escape" future taxation.

On the ten-year tax shadow: How would that even work? If you were no longer a citizen, what claim would the US have on your money?

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There is a rule - quite reasonable in my opinion - that if you were to renounce your US citizenship but then come back for more than 120 days (per year) during the first 10 years following your "resignation", you are considered a resident of the US for tax purposes. It is designed to deter Americans from giving up citizenship solely for tax evasion purposes, as opposed to actually moving to another country. I imagine one enforcement mechanism would be the denial of entry.

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Some friends of mine are yelling "see? our tax code is pushing capital overseas!" My argument is, that with $4B at stake, even if we had a "reasonable" income tax, people like this would still seek out tax havens where the burden is even lower still.

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Surely the number of people who would renounce their citizenship to save a small portion of their income is smaller than the number of people who would renounce their citizenship to save a large portion of their income.

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The article also references new changes in US laws that require even foreign institutions holding funds from US citizens to meet very strict reporting requirements on those funds. In response, some institutions are simply refusing to take funds from US citizens rather than accept what they see as the onerous burden of complying with these reporting requirements.

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To a multibillionaire, the value of retaining American citizenship could easily be hundreds of millions of dollars. Or it might be much lower in that. The degree of which citizens seek tax havens will be proportional to the level of taxation, not a black-and-white yes-or-no thing.

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I would argue the opposite. To someone with several billion dollars, citizenship probably doesn't matter all that much.

To someone with a couple million dollars, having that U.S. flag on their passport does afford a great deal of freedom and security. But, with several billion, you can pretty much buy all the freedom and security you can get.

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For a rich person the costs of moving (and other transaction costs) are far less... arguably if the transaction costs were lower (walk across the border to a waiting job) lots more people would do it at far lower income/tax levels.

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We should give people a number of votes proportional to how much money they have, to give wealthy people more incentive to stay.

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That is a joke right? (I really hope so)

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Personally I'm in favour of a system where it's done both ways. Most countries have a bicameral legislature in which one branch is a bit of a joke. My idea is that there should be a "House of Representatives" and a "House of Taxpayers", both of whom need to sign off on any bill.

In the election for the House of Representatives, everyone gets an equal vote. In the election for the House of Taxpayers, everyone gets a vote precisely proportional to how much tax they pay.

That way, the interests of everybody are balanced -- the folks who are affected by a new law and the folks who have to pay for the new law have both signed off on it.

It's a pipe dream, I know, but it'd be nice to see a country where the most competent citizens are appreciated rather than punished.

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Why single-out the taxpayers? Do you also need a house for the poor (they surely are impacted by laws)? What about minorities? Etc.

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So you agree with your friends that people act in their best interests, including changing citizenship, when it comes to taxes, you just disagree on the amount of money it would take?

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I don't think it's true for the vast majority of people. Most Americans, including most wealthy Americans, are happy to be Americans, even if they aren't happy about everything in the US. Rejecting your home country for monetary reasons is a fairly drastic action, and only a very small number of people take it. I mean, you don't see Bill Gates moving to Monaco or anything. Not even very-rich people with libertarian politics, like Larry Ellison or the Koch brothers, are itchin' to leave the country.

In fact the number is even smaller than the raw number of renunciations. A spot-check at the list of renunciations suggests that most are actually people who in practice ceased to be Americans long ago, or in some cases never were. Some were born overseas to American parents and have never lived in the US; one actor on the list is of Italian origin and moved back to Italy 40 years ago; etc. Apart from a tiny handful of cases, it seems more like formalizing situations that already exist (people who aren't really Americans just making it formal). A number are also people applying for citizenships in countries that don't recognize dual citizenship, who are required to renounce their American citizenship to do so.

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People regularly choose against their own best interests due to perceived obligations to family, organization, country, etc.

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Saverin was born in Brazil and has been living in Singapore for a while. There are also probably psychological advantages to being out of Zuckerberg's shadow.

While taxes might have played a role, it's not obvious that this was the principal factor.

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It's common for UK citizens to give up citizenship, prior to an exit in their business and move to Monte-Carlo or Gilbraltar for a few years to avoid capital gains tax.

If Facebook blows up on the IPO and the stock value increases 50% or 100% he could easily be saving $500m - $1b in taxes. It's a no-brainer...

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It's more of a no-brainer when he isn't even American. He "became" an American citizen in record time - arrived in the US in 1992 and was a citizen by 1998.

I'd say citizenship was given a tad too lightly.

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He's 30 now, right? So he arrived at age 10 and was a citizen sometime before 16. The rules are (as they should be) a little different for minors.

Edit: dumb math error.

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Someone on HN caught that as well: http://news.ycombinator.com/item?id=3944467

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The lack of social responsibility is what erks me the most about Saverin's decision. Saverin takes full advantage of the investments and sacrifices made by countless Americans and then when the country asks for him to uphold his obligation as a citizen, he leaves to save a few percentage points. This is a tactic for small thinkers.

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I feel it's really unjust the way we treat our fellow citizens living abroad. I would hate to be taxed both by the US and the country I was living in. He's already paid very a very large amount of tax for the value he generated while living in the US. Why should he pay US tax for the value he generates while living in Singapore or elsewhere?

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> This is a tactic for small thinkers

Quite so. Good riddance Mr. Saverin.

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Presumably, he would be paying long-term capital gains this year, which is only 15%. Sure, it's 15% of a lot a money, but it's still only 15%. I guess a big part of the reason to give up citizenship is not the tax, but also the fact that he has strong roots outside the US to being with.

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30 years old. He'll have to do his National Service in the Singaporean army.

Edit: Correction. His children would be eligible.

Also, Singapore doesn't allow dual-citizenship, so he'll have to give up his Brazilian citizenship (if he had it).

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The article doesn't say he's establishing citizenship in Singapore; just residency. He presumably will remain a citizen of Brazil.

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Which also has military service (presumably obligatory, though in practice it hasn't been so for some time)

http://en.wikipedia.org/wiki/Military_service#Brazil

"While de jure all males are required to serve, numerous exceptions mean military service is de facto limited mostly to volunteers, with an average of between 5 and 10% of those reporting for duty actually being inducted"

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That makes more sense.

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> 30 years old. He'll have to do his National Service in the Singaporean army.

No he doesn't. First generation new citizens are exempted. His kids will need to.

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Immigrant who only sought US citizenship for financial gain, renounces US citizenship for financial gain. This is not terribly surprising.

There is a subset of Immigrants that move to the US, not because they believe in its ideals, but because it is financially advantageous for them to do so. Sometimes it works for the benefit of the US... as in this case. Other times... not so much.

On balance, I believe we generally gain more than we lose. Though I have no data to back up that assertion.

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Immigrants believe in American ideals more than most Americans. Esp when most americans barely know anything about their own country. How many of us even know the bill of rights by heart?

Just because one guy is making a financial decision doesn't mean you blame a large group for some perceived lost of ideals.

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"Thanks for all the opportunity. Later, U.S.!"

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I believe he would still keep is green card, I'm not sure though.

Also, if you worth more than 250K you can get in the US, and get a permanent resident visa (green card).

The only 'benefits' [1] of being an US citizen is, the social security money when you retire, and the right to vote.

With that being said, I'm about to start the process to become a citizen. I think everyone should do it if they can, since, you don't know what's gonna happen when we have an immigration hating president.

[1] Not sure if social security would have any funds when I, and Eduardo, retire. And, I don't think voting counts in this country.

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Does patriotism have anything to do with citizenship? or is the question of acquiring citizenship becoming a function of your financial/carrer plan? (I can see that in a lot of comments here. It is an easy logic too.)

In other words is "patriotism" or "nation state" a medieval concept that will, over the next century, morph into the "market-value-ism" or "market-states"? (In the hypothetical "market-value-ism": You will be able to enter exit & participate in civic activities an any place based on the education/wealth that you have &/or the corporation you are aligned with.)

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See also http://news.ycombinator.com/item?id=3960000 .

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Brazilian law says that he should have lost his Brazilian citizenship for voluntarily acquiring the US citizenship (which also requires that you renounce all others).

But I guess with so much cash it won't be a problem.

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Both Brazil and the US have allowed dual citizenship for some years now, so he's fine on that front.

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The governments of the US might tolerate dual citizenship, or turn a blind eye towards to it, but legally speaking, it's not allowed; you can have allegiance to only the United States.

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Depends on what you mean by "legally speaking". The citizenship oath does require allegiance to the United States, but unlike in some countries, there is no law requiring naturalized citizens to renounce other citizenships as a condition of naturalization. So both practically speaking and legally speaking, dual citizenship is permitted.

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Depends on when it is done ... for example as a child the rules are different for a lot of countries and dual citizenship would be allowed.

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US citizenship is a nasty trap from which it is extremely difficult to escape. The US is one of a very small number of countries which will happily tax its citizens on income earned overseas, thus causing them to pay double taxes on everything they earn.

This has seriously bad consequences for US competitiveness, in particular:

1. It discourages competent foreign citizens from seeking US citizenship (a greencard is so much better!)

2. It discourages US workers from spending some of their careers overseas, thus reinforcing US cultural insularity and giving competitive disadvantages. Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

3. And of course, things like this.

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A green card has similar problems, similar exit taxes and so on. Get a green card, move back to your home country, you still have that tax burden as long as you have that green card.

The USA is only one of two (other being Eritrea) countries that taxes non-resident citizens. On top of that Eritrea's expat tax is only a flat ~%2 and is a remote african dictatorship. The USA is the only country which exposes it's non-resident citizens to a full tax load and system.

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>2. It discourages US workers from spending some of their careers overseas, thus reinforcing US cultural insularity and giving competitive disadvantages. Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

It's worth pointing out that Singapore and Malaysia are both British Commonwealth countries, which does make it much easier for the Brits, Aussies, and New Zealanders to move to and work at those locations. Shanghai was also one of the major trading ports(along with Hong Kong) for the British with China, so they also have a very long history with the British Empire.

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You're missing a key aspect here:

Social Security.

While the US does indeed have tax treaties with many countries, it doesn't have treaties with everyone regarding social security.

I live in Israel, which does have an income tax treaty with the US. Still, for many types of employment and contracting scenarios, I must pay social security "twice"—once for each country. That's a hefty amount of double taxation.

Regardless, the cost of compliance is a real burden. I'm still filing my 2010 taxes. I have accountants on both sides. Figuring out how to correctly pay my taxes, how much to pay, and how to operate in order to minimize my tax profile is a gigantic pain in the ass.

FYI.

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Social Security is not taxation. You get money back directly to you correlated with what you paid.

As for as the "double" part, can you not then collect from both countries when you retire?

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That's not accurate. SS returns don't scale directly with payments. The more money you make the less you get back from SS (percentage-wise). There are also some other rules regarding marriage. It's redistribution of wealth and is not simply money back in direct relation to what you pay. (I am not taking any ethical or political stance on wealth redistribution. I am just noting that the previous description of SS is not accurate.)

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Note that I said "correlated with" and not "proportional to".

While technically true, I wouldn't really call it a redistribution of "wealth", when income is capped at ~110k for the SS calculation. Wealthy people are hardly affected.

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You're wrong about double-taxation. Most countries have an agreement with US to avoid double-taxation, so in practice you pay the larger of the two - US tax or the tax in the country of residence.

Another thing to note is that if you give up your citizenship you only pay taxes for all gains up to that point, so you actually have a choice - stick the American passport and pay US taxes, or give it up and don't pay US taxes.

I don't like the system either, but it's not THAT bad. Certainly did not deter me from coming here :) and will not deter me if I want to go somewhere else.

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"And of course, things like this."

Things like this? I'm a little confused. Are you referring to the US government taxing capital gains income that an extremely rich US citizen earned in the US? Or are you referring to the laws that allow the government to collect those taxes, even when the individual has tried to avoid paying by fleeing the country?

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One key thing to note is that he's giving up citizenship before the IPO because he's going to be richer after the IPO and the US levies a tax on all your worldwide assets (not just your income) when you give up citizenship.

So if he ever wanted to move overseas to begin with (and avoid being taxed on the US while he lives overseas - a rather obnoxious system from all I hear), now's exactly the time to do it.

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Your assumption on #2 is not correct. Americans living abroad get a tax credit (almost $100k currently), so in practice average-income US professionals living abroad are US tax-exempt. Above that, there are many rules designed to prevent double-taxation.

Also, US citizenship is not a "trap" in Eduardo's case. It was his choice to become an American citizen in the first place.

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We're exempt on tax on "Earned Income" up until a certain level (and yes, there is a highly technical definition for the type of income that qualifies for this). As one of the other commenters mentioned, we still have to pay full on Social Security, Medicare, Self-Employment taxes

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If you live in one of the 24 countries with a social-security totalization treaty (which is most of Europe, plus Japan and a few other countries), that's not true. I don't pay any U.S. payroll taxes as an American expatriate.

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What does any of this have to do with the linked article? Savarin clearly wasn't trapped, he "escaped". He wasn't paying significant tax on overseas income, his wealth was generated inside the USA.

Point #1 seems to be belied by simple observation. My US-based career has been filled with international professionals, virtually all of whom planned on spending their careers here, and almost all of whom have/had or were planning to get US citizenship.

I guess #2 makes sense, though honestly the biggest barrier to US professionals leaving for career opportunities elsewhere is the fact that (almost without exception) the same jobs pay much better here.

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If you read the article he still has to pay the exit tax.

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I read the article. You mean the exit tax that "trapped" him in the USA, from which he just expatriated? I must have missed that part.

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You seem to have interpreted "trapped" more literally than I. My take was that it meant he was "trapped" into paying taxes, not physically trapped in the US.

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It does not discourage US workers from spending some of their careers overseas. Most workers, even if working overseas, don't make enough that they have to pay taxes on foreign earned income. --Between the deduction for money earned overseas, deductions for housing, and other standard deductions, if you earn enough that you're going to get taxed by the US, you earn enough that you might as well pay an accountant to help further reduce your tax burden.

I don't buy #1 either, since most people don't get citizenship in a country unless they plan on settling there.

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It looks like you have to make over $150k/year to have to pay worldwide taxes:

http://www.irs.gov/businesses/small/international/article/0,...

It's not cool on principle, I suppose, but most people find it hard to sympathize with the problems you face when you make more than $150k/year.

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Just to clarify, your link refers to the income limits that qualify someone for the exit tax (i.e. the tax that you have to pay the IRS upon giving up your citizenship).

If you remain a U.S. citizen but choose to live abroad (i.e. pay taxes in another country), you also have to pay income tax to the IRS, but you can exclude the first $95,100 of your income from being taxed.

Source: www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

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The cutoff is, if I recall correctly, $80K. So it doesn't apply to most workers, only the competent ones.

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The foreign income exclusion is currently $92k, but even above that, in any country which has a bilateral tax treaty with the U.S. (almost all developed countries), you can deduct the foreign tax paid from U.S. tax obligations. I'm an American expat in Denmark, and from what I've back-of-the-envelope calculated, there is almost no possible circumstance in which I would owe U.S. taxes, because I get a credit for Danish taxes on my U.S. taxes, and Danish taxes are always higher, which zeroes out the U.S. taxes. So even if I made $150k I would not owe U.S. taxes.

In fact I typically don't take the $92k foreign income exclusion, because excluded income isn't eligible for IRA contributions, and I'd like to keep contributing to an American IRA. So I report my full Danish income on the 1040, then subtract the Danish taxes, and end up owing $0 without even using the exclusion at all.

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You still owe social security and other taxes - just not federal income tax.

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I don't, because there's a bilateral US-Denmark "totalization agreement" on social security, which ensures no double-taxation. There's a rubric determining which country you owe taxes to, depending on where you reside, what your nationality is, and who your employer is (but it's never "both"). It also takes a small step towards allowing you to shift years accumulated in one country's program to the other.

Such treaties exist with 24 countries, so of course you'd be right if I didn't live/work in one of those 24: http://www.ssa.gov/international/agreements_overview.html

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I stand corrected. The country I lived in is indeed not on that list which is evidently why I still had to pay SS taxes.

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I'm not sure if your greencard comment is ironic, but permanent residents (green card holders) are subject to the same "exit tax" described in the article.

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And if ever trade with Cuba of many of the countries the US is at war with, you will face criminal charges even long after you have given up your green card.

Hong Kong, Singapore, Switzerland. Get yourself a permanent residency in at least one of those three.

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Singapore permanent residents are required to do 24 months of military service, and in addition, show up for annual refresher training every year until they turn 40. I'm currently an American expat who has to file a 1040 once a year, and I would gladly continue doing that rather than spend a bunch of my time in the Singaporean military...

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I thought that was only for the children of PRs. First generation immigrant citizens and PR do not have to do military service if their over a certain age. And countries with military service requirements have many ways to get out of it.

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Kind of casts Michelle Bachmann's recent headlines in a different light.

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It's my understanding that there are no "double taxes", only that you still have to go through the tax process for both countries and you deduct your non-US taxes from your US taxes, then pay the difference if the US taxes are greater.

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re: Point 1, "If you are a resident alien, you must follow the same tax laws as U.S. citizens. You are taxed on income from all sources, both within and outside the United States"

From http://www.irs.gov/taxtopics/tc851.html

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Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

Americans are exempt from the double-tax up to $91,400. Since I imagine most expat workers are earning under this level, I don't imagine that taxation is what's keeping Americans at home. Personally, I've found it difficult to even be considered for work abroad, usually due to visa issues. Other countries seem to have reciprocal working holiday visas for young people, and I imagine that this allows people to develop the specialized skills that justify the visa sponsorship or permanent resident status necessary to continue working abroad.

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Just wanted to provide a bit of additional information on the US foreign income tax exclusion: You only qualify if you are outside of the US for 330 days of 365. Otherwise you're responsible for your full tax load. http://www.irs.gov/newsroom/article/0,,id=108276,00.html

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He's going to regret this down the road. Yes taxing on Worldwide income is absurd but not more absurd than giving up your right to live in the US. There will come a day, probably not too far in the future, where being young and rich on a tiny island isn't fun anymore and he's going to want to do something with his life. He's going to be quite sad when doing it in the United States is no longer an option.

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Do you truly imagine this means he has to live on a tiny island? With billions of dollars?

The man could easily maintain homes in wonderful places around the world and do whatever he wants with his life in any of them.

He's not going to regret this for even a minute.

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He wont have to live in Singapore forever but that appears to be his plan at the moment. He's been there for quite awhile and seems to be loving it. It is a great place to be young, rich and good-looking. It's going to get old if he tries doing it for the rest of his life though. 10, 15, 20 years down the road is where that regret will kick in.

Sure there are plenty of other great places to live than the United States - but his career trajectory seems to be in tech. Thats where he is continuing to invest and put his time. All roads in that arena lead to California - a place he just voluntarily gave up the right to ever reside, work and do business in.

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There are places other than California to do things in tech, believe it or not.

Facebook wasn't even founded in California, for example.

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They re-located to California and are still based there today. What does that tell you about the point you are attempting to make?

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this has got to be one of the most insular things I've seen on hn in a while. sure, the us is a wonderful place in which to "do something with your life"; in fact it's where I've currently chosen to do something with mine, so I'm certainly not bashing it. but the world is full of places in which billions of people are doing fascinating things with their lives; to say that someone who made the considered decision to give up citizenship is going to regret it because only by coming back here can he accomplish stuff is deeply myopic.

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And yet sadly, most Americans seem to have this myopic view that the USA is the be-all and end-all of everything good, sacred, and worthy. Welcome to America

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I find this to be extremely interesting.

When people in America have a hard time getting a house loan, or have shitty health care, or are living on food stamps, they simply say "Well, at least we are better off than everyone else".

THAT is extremely scary.

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For the vast majority of the world's population, not being in the United States hasn't been a barrier to doing something with their lives.

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Or like most people who get US visas, they'll just buy their way back into the US.

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You might enjoy the fantastic book "Emergency" by Neil Strauss. It's non-fiction and deals somewhat with the "5 Flag" theory.

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The US has a ton of problems. It's not a great place to live IMHO.

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Not at all, He can still go to the US as a visitor when eer he wants (he just needs a visa), and even long term by applying to be a resident alien.

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The IRS and State Department (who issues Visas) are well aware of the hack you are describing and the system is already setup to prevent people from doing that.

I was an expat for close to 7 years, have friends who renounced and thought long and hard about doing so myself. I can say with great conviction that long term, in my educated opinion, it isn't worth it.

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I don't think he's going to miss anything US :-)

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Being rich in Singapore is not exactly limiting.

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There are plenty of good, useful, and interesting places in the world outside of the US.

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Singapore in not an island.

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It's a state made up of 60+ islands. The largest is often called "Singapore Island":

http://en.wikipedia.org/wiki/Singapore#Geography

http://en.wikipedia.org/wiki/Geography_of_Singapore

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So it's not an island

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Singapore is an island

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The catch here is: good luck getting back in. The US gov't takes notice of this stuff, and it's just good to be aware of the implications for if you ever want to come back to the US. Not saying it's wrong or right (by all means, the less tax the better), but it's important to be aware of the consequences.

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