Elective Residence-Based Taxation for Americans Abroad: Easing Tax Burden.
This bill allows US citizens residing abroad to elect a new residence-based tax system, meaning they would primarily be taxed by their country of residence, rather than the US, on foreign income. This change aims to reduce tax and compliance burdens for expatriates, but it includes a one-time 'exit tax' on unrealized gains for high-net-worth individuals upon switching systems. Furthermore, the act prohibits foreign financial institutions from discriminating against US citizens who are residents of that country.
Key points
Elective Tax System: US citizens living abroad can voluntarily choose residence-based taxation, exempting them from most US income taxes on foreign earnings.
Exit Tax on High Net Worth Individuals: Individuals with high net worth (exceeding the basic estate tax exclusion amount) must pay a one-time tax on unrealized gains from their assets upon election, treating them as if they were sold.
Reduced Reporting Requirements: Electing the new system provides exemption from certain complex reporting requirements regarding foreign assets and transactions (e.g., FATCA and FBAR).
Protection Against Bank Discrimination: Participating foreign financial institutions are prohibited from discriminating against US citizens who are residents of the country where the account is maintained.
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