Steve Wozniak, one of Apple’s co-founders, reportedly wants to become an Australian citizen in order to move to the country and set up a nationwide broadband network. There are always tax implications related to a move abroad, the extent to which depend on a number of factors unique to each taxpayer’s situation.
Mr. Wozniak, a US citizen who wishes to remain so, will be treated as a typical expatriate. As a citizen, he is taxed on his worldwide income, no matter where it is earned whether or not he ever returns to the United States. He will be entitled to an exclusion of $95,100 (indexed for inflation) of employment income earned in Australia but will be taxed on the remainder. He will also be taxed on any business and investment income earned in Australia. Fortunately for him, he will be entitled to a foreign tax credit on his Australian tax return so he is not double-taxed on the income. Australia’s top income tax rate is 45%, so this should cover most, if not all, US federal taxes.
But Mr. Wozniak is not out of the tax woods yet. He lives in California, probably the most aggressive tax-enforcement state in the country. As a domiciliary resident of the state, Mr. Wozniak must set up a domicile in another state to avoid paying California’s 10.3% tax rate the rest of his life. Doing so is not as simple as it sounds. Mr. Wozniak would have to sell his California real estate; get a driver’s license and register to vote in another state—which usually requires one to have an address in the state—and set up some ties in the state, such as closing California bank accounts and open them in the new state, contributing to local charities, etc. Washington would be the most logical state with its proximity to California (and Australia) but any no-tax state would work.
Facebook co-founder Eduardo Saverin renounced his US citizenship in 2011, prior to the company’s IPO, to become a resident of Singapore. When a person renounces his citizenship to move abroad or when a permanent resident returns his green card, he must fill out Form 8854 to pay taxes on the appreciation of any investment property as of the date he leaves if his net worth is at least $2,000,000 or if his average net income for the previous five years exceeds $124,000. Basis in the property becomes the value on the move date. Mr. Saverin’s move has struck a chord with government officials who point out that his move appears to be predicated on the avoidance of US income taxes, which is illegal. Mr. Saverin relocated to Singapore, a country with no capital gains tax and in which he had no previous ties, instead of returning to his native Brazil, of which he is a citizen.
Deciding to leave the United States whether for business, personal or tax purposes carries potential tax implications which may not seem obvious to the departing. These moves should be carefully planned not only with legal experts but tax specialists as well.