US Taxation: Arrivals and Departures

As the world’s largest economy, the USA plays a central role in global affairs and remains a pivotal consideration for individuals and businesses alike.  For many, it continues to represent the ultimate destination for opportunity and wealth creation. For many of those already residing there, the breadth of advantages and lifestyle offerings makes the idea of living elsewhere inconceivable.  Love it or loathe it, the USA is a force that is impossible to ignore.

That said, the country has many unique facets, one of which is its rule that taxes citizens on their worldwide income, irrespective of whether they live in the USA. Other countries permit their citizens to cease tax residence once living abroad, whether through a day count or a facts and circumstances test based on the location of their permanent home, center of vital interests, or habitual abode. But the USA will always tax its citizens on the basis of worldwide income, wherever they are living, and require them to file tax returns every single year.

This also extends to green card holders, who will continue to pay for the advantage of their access to the USA even if they do not exercise that privilege.

Tax residence outside the USA

Becoming resident abroad naturally introduces changes to one’s tax position. Once an individual has become tax resident in another jurisdiction, that country typically gains the right to tax income earned within its borders — and, in some cases, earned elsewhere if it taxes on a residence basis. Any foreign tax paid on such income may be credited against the individual’s US tax liability on the same income, so at least the income is not taxed twice. It will, however, be taxed at the higher of the two rates. If the foreign tax exceeds what would be owed to the USA, the higher foreign rate applies. Conversely, if the foreign tax is lower, the individual must pay the difference to the USA, resulting in a top-up payment on the foreign income tax to meet the US tax obligation.

The US also allows for the exclusion of earned income from the US tax base under the Foreign Earned Income Exclusion (FEIE), which is set at USD 130,000 for the 2025 tax year. As a result, many US nationals living abroad incur little to no US income tax liability. In certain jurisdictions where housing costs are deemed significantly higher than in the USA, a partial exclusion for foreign housing expenses may also be available.

To a certain extent, this provides US citizens with greater flexibility in choosing where to live abroad. Since a zero tax rate is not achievable due to ongoing US tax obligations, relocating to any country with a lower tax rate than the USA can result in a largely tax-neutral outcome.

Strategic jurisdictions for tax efficiency

Attractive options include the United Arab Emirates, which imposes no personal income tax, and several Caribbean island nations such as Antigua and Barbuda and St. Kitts and Nevis, both of which offer citizenship rather than mere residence.

Flat-tax jurisdictions such as Greece, Italy, and Switzerland can also be appealing, although their economic attractiveness often depends on the precise make-up of the investor’s taxable income. These regimes typically apply typically apply fixed annual taxes to foreign-sourced investment income, which may not align neatly with the FEIE. However, for individuals with the right income mix, these frameworks can offer substantial advantages.

The UK’s new Foreign Income and Gains regime may be attractive as well, although the country currently lacks a straightforward investment migration route to enable access to investors.

Cyprus also has a favorable regime that doesn’t always tax all categories of income. In some respects, this is comparable to the territorial tax systems of Costa Rica and Panama , which are popular among US nationals who prefer to remain within a similar time zone or require east of travel back to the USA.

Renunciation of US citizenship

For US citizens, the only definitive way to opt out of the USA’s worldwide taxation regime is to formally renounce their citizenship. However, this process can trigger an exit tax, under which an individual’s global assets are deemed to be disposed of on the day of expatriation, and capital gains tax may be levied — even if no disposal has taken place.

As the complexities of giving up a citizenship without another to go to can leave individuals in a precarious position, renunciation requires individuals to acquire alternative citizenship before relinquishing their US nationality. This new citizenship may or may not also lead to tax residence, depending on whether they choose to live thereafter. A growing number of US nationals have been acquiring additional citizenships in recent years, but whether this is a prelude to renunciation or simply a ‘Plan B’ is too early to say.

Rethinking inbound taxation

Current holders of the EB-5 visa inbound to the USA find themselves also in possession of the worldwide tax liability that goes with the green card. This has historically been a significant consideration for high-net-worth individuals weighing the benefits of US residence against the global tax exposure it entails.

However, recent speculation around the proposed ‘Trump Gold Card’ suggests a potentially dramatic shift in this approach. Preliminary reports indicate that holders of this new visa category will be taxed on their US source income only, which is more consistent with the concessionary tax rules that other countries often offer for inbound expatriates. If enacted, this would be a significant shake up compared to previous rules. For inbound investors who are anticipating growing businesses with substantial future gains, such a territoriality may prove to be a valuable concession.

Beyond tax rates

Despite offering relatively low headline tax rates, the USA expects its taxpayers to fund certain costs that are often publicly funded elsewhere, whether these be healthcare, higher education, or other essential services. As such, tax liability is only one part of the overall financial equation for prospective residents.

Given the uniqueness of the US tax system, it is essential that individuals planning to relocate undertake a comprehensive review of their tax position well in advance — a key component of a smooth transition from a tax perspective.