The Sarkozy Outburst: It’s Not Just Americans who Need Second Passports

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(reproduced from our free Q Bytes newsletter)

Anyone who reads much about international tax law knows that the USA is the only country on earth that taxes its citizens on their worldwide income even if they choose not to live there. This situation, though the US government don’t want to admit it, has led to long waiting lists at US consulates abroad as America’s brightest and most productive citizens queue up to renounce their citizenship.

As a British citizen, I still have the freedom to leave the UK, and as long as I don’t have any UK income then I don’t even have to file British tax returns any more, never mind pay taxes.

This, however, may be changing soon. French President Nicolas Sarkozy’s recent outburst on television exemplifies this. France may not be a country we normally expect to follow the US example, but Sarkozy clearly stated on French TV on Monday of last week: “We’re going to apply what the Americans apply… a tax based on citizenship.”

I call it Sarkozy’s ‘outburst’ because it was apparently a spur of the moment thing, not thought out at all. He wants to tax “tax exiles” but not French expat workers. Good luck drafting laws that make that distinction work! I somehow doubt this proposition will come to fruition too quickly.

However, the language used was nothing short of extremist. “Is it normal,” he went on to ask, “that one can have French citizenship but exonerate oneself of French taxes? It’s profoundly shocking!”

Profoundly shocking to crazy Sarkozy perhaps, but I would say it is completely normal given that it’s the status quo in every country of the world except the USA.

I am wondering what advantages there really are to having French citizenship, if one does not live in France? And I guess a lot of French expats are having exactly the same thoughts right now.

Granted, it’s a pretty good passport to travel on. And if you get into a spot of bother in Colombia or Afghanistan they might send some commandos from Paris to help you out. But is that worth paying more than half your income for? If you frequent risky places you can pretty good kidnap and ransom insurance for a lot less money elsewhere and it won’t be politically motivated either.

France was also in the news this week due to a lone Al Qaeda gunman who went on the rampage in Toulouse, killing seven people including two children. A very, very sad case, but it shows again the probability that terrorists will single out French citizens just as they will single out American (or British) citizens.

You probably don’t need the implications of this news spelt out. Other countries have crazy politicians too. Will the UK, Australia, or Canada be the next country to propose worldwide taxation for its citizens? Or will it be Brazil or Russia or China? I don’t know, but I would say it is highly on the cards that this will happen.

WHY WOULD ANYONE WANT A SECOND PASSPORT?

That is a question I am frequently asked. My standard response is: “You either get it or you don’t.” Unless you are a US citizen about to renounce, the numbers might not stack up. You might not find more profits on your balance sheet the year you acquire a second passport.

“But,” said a US lawyer friend during a conversation this week, “everyone I know who got a second passport is REALLY glad they got it.”

A little example of my own is the visa I need for my trip to Moscow this spring. I have a British passport as I was born there. Due to all kinds of reciprocal measures, obtaining a visa in this passport, from outside the UK, required an enormous paper chase, a few hundred dollars in fees, and a 10-14 day wait. Fortunately I also have a South American passport in which I could get a Russian visa in 3 days with less hassle for a fee of under $50.

WHY NOW IS THE TIME TO GET A SECOND PASSPORT

Why should you get a second passport now? Simply, because if you don’t get the process started now, it may be too late. Second passports are not issued instantly. The absolute quickest you can get a legal second passport is about 90 days. Better, much cheaper options might take five years. The trend is undoubtedly that things will become more difficult and more expensive.

I would say there is at least a 50% chance that some European nations, Canada or Australia will move to worldwide taxation of citizens in the next five years. Some might argue the chance is much higher.

One significant reason this might happen is simply that it is getting more possible to track international assets. Before there was not much point in worldwide taxation because it was unenforceable from a practical point of view. With information exchange on assets and bank accounts becoming the norm rather than the exception, this has changed. The US is blazing the trail with FATCA and will likely share the FATCA information with other friendly governments, who will thus have even more incentive to introduce worldwide taxation for their citizens.

I am not here to preach doom and gloom. I hope I am wrong and that taxation of worldwide income for expats does not become the norm. But having a second or third passport up your sleeve would definitely seem like a smart strategy at this stage.

How to get one? The articles on Q Wealth Report and in the members’ area are a good initiation. We have explained both the current economic citizenship programs, like St Kitts and Nevis and Dominica, and the second residency programs that can lead to citizenship, like Paraguay and Dominican Republic. We’ve even touched on other citizenship regimes that are relatively easy going, like Montenegro, Belize, Uruguay and Grenada. When you are ready to move forward, feel free to contact our offices for referrals to suitably qualified professionals who can help you. (The referral service is limited to paid up members – thank you for your understanding)

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