The only “way” to really avoid it is renouncing the American passport (if they are a naturalized citizen of the country they have moved to first). Like this: the individual has moved abroad to another country under an US passport at first, but they still owe taxes to the US government despite them not physically being there even though they’re earning a foreign paycheck (until they surrender their passport for another not considering dual citizenship).
Why don’t digital nomads consider naturalization rather than living under a Golden Visa? I know that Portugal or Spain for instance is popular towards digital nomads, but should they renounce their American passport into becoming a Spanish or Portuguese citizen? Also, why don’t Western expats living in Dubai consider Emirati citizenship (they do not recognize dual citizenship, though) if they consider the UAE their new home?
I renounced my citizenship in 2002, just after Dubya shat out the USA Patriot Act - the first piece of overtly fascist and unconstitutional US legislation. And it was NOT cheap back then.
The US taxes you if you’re an American living and earning money abroad, even if you don’t live in the US and you don’t use any US public service. And if you want off the hamster will, the US makes you pay one last time for the privilege.
Why? Because it’s a mafia state, when it’s not a fascist one too.
I’m gonna ask as a Brit, but how?
Say you’re an American. You move to the UK, get british citizenship, a job, bank account etc.
How do the American IRS know? And how do they even enforce it?
You have reporting requirements called FATCA and banks have reporting requirements for US customers. It’s annoying to say the least.
**edited: thanks @[email protected]!
Just to help people searching, it’s actually FATCA (as in FATCAt)
Whoops! Fat fingered. Let me update.
They don’t, you’re just obligated to report your global income as a US citizen. This isn’t a big deal if you plan to never go back to the US to live there, but if you do (or aren’t sure), this becomes a major issue because all those years you didn’t file your taxes with the IRS makes you effectively a tax cheat whether or not you owe any taxes at all.
If you pay income tax to another foreign government (that has a tax treaty with the USA) and you earn below the threshold for an individual or a household, then you don’t pay taxes at all. In order for the IRS to determine this they need to know how much you made. I don’t know what the actual threshold is for individuals, but in the 5 years that I’ve been living outside of the US, I haven’t paid a single cent in US income tax. It’s a pain in the ass, but whatever, you get used to it.
The other person responded with the why, but not the how.
Realistically unless you step foot on US soil, or the country you moved to has existing treaty deals to deal with it like Canada does, they won’t be able to do anything about it. It’s unlikely the US would try to extradite you, and even more unlikely the country would cooperate with it.
Being said, countries that do have treaties about it could simply freeze your assets or wages prior to you receiving them, and pay your delinquency off that way.
Other people have answered this question but, it’s worth noting that it’s different per country, but there are at least two types of reporting treaties. Type 1, they report to the local government who does the reports to the IRS, or Type 2 where the businesses (FFIs, foreign financial institutions) themselves report account info directly to the IRS via online FATCA portals.
There are very few Type 2 countries.
Edit: Adding links
https://www.irs.gov/businesses/corporations/fatca-governments
https://worldpopulationreview.com/country-rankings/fatca-countries