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Call To Cut Double Taxation Of Americans Resident Abroad

Monday, December 9, 2013

American Citizens Abroad (ACA) has written to the United States Treasury Secretary Jack Lew, and other interested stakeholders in the Treasury Department, the Internal Revenue Service and Congress, calling for a correction to "what appears to be a drafting oversight in the preparation of the Affordable Care Act that leads to double taxation of Americans resident abroad."

Firstly, it has been found that the 3.8 percent Net Investment Income Tax (NIIT), or Medicare contribution tax, which is to be imposed against individuals, estates and trusts on their investment income, will not be able to be reduced by the application of foreign tax credits, and Americans resident abroad whose income reaches the tax's thresholds would be required to pay NIIT over and above all foreign taxes already paid on the income.

Furthermore, as the threshold amount for individuals is only USD125,000 for married taxpayers filing separately, it is said that the NIIT threshold will be reached by many Americans living abroad and married to foreigners.

"It is all the more exceptional and contrary to normal tax practice in that these taxes finance the health care programs in the US, which Americans abroad do not access, as their health care is covered in the country of residence," the ACA adds. "In the final drafting of the Affordable Care Act, the specific situation of Americans resident abroad was recognized as the law states that Americans resident abroad are not subject to the penalty in the law for not having a US health insurance plan."

The 0.9 percent Additional Medicare Tax is also part of the revenue raising measures of the Affordable Care Act, and applies to an employee's wages and self-employment income subject to the Federal Insurance Contribution Act (FICA). It is imposed on Americans resident abroad, and it is not clear in its regulations if it may be attenuated by the Totalization Agreements that the US has completed with other countries for the purpose of avoiding the double taxation of income with respect to social security taxes.

However, it is noted in the letter that, even if the Totalization Agreements do apply to prevent double taxation, such agreements exist with only 24 countries, and will not therefore apply to many Americans resident abroad, particularly since the threshold for "married filing separately" is, again, only USD125,000.

The ACA concludes that the required contribution to US FICA taxes, particularly by self-employed Americans abroad, "leads to double taxation for many, putting American entrepreneurs abroad at a significant competitive disadvantage. … Americans abroad are subject to similar if not higher FICA type taxes in the country of residence. How can American entrepreneurs be competitive with more than 30 percent FICA type taxes?"

Therefore, the ACA requests that, when Treasury finalizes the relevant regulations, it should allow Americans abroad to apply foreign tax credits against the NIIT, while they should also be exempted from the Additional Medicare Tax. If the corrections require legislation, the ACA asks Treasury to encourage Congress to adopt legislation accordingly.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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