US expatriates' hopes for an end to double taxation gained new momentum on Wednesday, as a politician introduced a bill in the House of Representatives that would allow citizens living abroad to switch to a residence-based taxation model.
The bill, put forward by Representative Darin LaHood of Illinois, is in line with president-elect Donald Trump's campaign pledge to end double taxation for Americans living abroad, who for years have complained about the complicated and costly process to remain compliant with the tax system.
News of the bill's introduction was first reported by The Wall Street Journal.
The US is the only major country in the world that taxes its citizens based on citizenship instead of residency. Americans living abroad still have to file taxes with the Internal Revenue Service, which can cost hundreds of dollars to complete even though about 60 per cent do not owe taxes, according to the Taxpayer Advocate Service.
Those obligations apply to millions of Americans living abroad – estimates range from 3.9 million to 5.5 million – including so-called accidental Americans who are unaware they hold dual citizenship.
Residence-Based Taxation for Americans Abroad Act
The new bill, called the Residence-Based Taxation for Americans Abroad Act, would establish a process through which Americans living overseas can elect to be treated as a non-resident without having to renounce their citizenship.
By doing so and moving to a residence-based tax model, their foreign-based income would be exempt from US taxes. Those with US-sourced income including real estate, investments and retirement income would still have to pay US taxes.
“In today’s world, Americans choose to live and work abroad for a host of reasons, and that does not mean that they should be subject to more onerous tax and compliance burdens,” Mr LaHood said in a statement.
America's wealthiest – those with a net worth higher than $13.61 million – would have to pay a departure tax if they opt out of the US system.
Those with a net worth of less than that amount and citizens who have not lived in the US since they turned 25 years old or since March 2010 could avoid the departure tax. Americans who have been tax compliant with the US in the past three to five years could also avoid it.
Income tax
The introduction of the bill received bipartisan support from groups advocating for Americans living abroad. Solomon Yue, president of Republicans Overseas, told The National that the bill “really shows momentum” on Mr Trump's campaign pledge. Mr Trump made the pledge in a statement to Republicans Overseas in October.
“We welcome any member of congress for supporting president Trump's pledge to end double taxation for overseas Americans,” Mr Yue said.
Tax loopholes
Democrats Abroad also welcomed the introduction of the bill and highlighted the bill's efforts to ensure it would not create loopholes for those hoping to evade US taxes.
“I’m extremely proud of the role Democrats Abroad has played in elevating the issue of the unfair tax burdens faced by ordinary Americans abroad and proposing ways to address them,” Rebecca Lammers, chairwoman of the Democrats Abroad Taxation Task Force, said in a statement.
Mr LaHood worked closely with Tax Fairness for Americans Abroad, a non-profit organisation, to draft the bill. Paris-based lawyer Laura Snyder said the bill was the result of direct work of TFFAA and its non-partisan organisations Stop Extraterritorial American Taxation and the Association of Americans Resident Overseas.
“The introduction of this bill is a milestone,” Ms Snyder, who holds positions in both organisations, told The National in a statement.
Mr LaHood told the Journal he hopes the bill can be included as part of tax legislation when Congress begins its new session next year.
If you go...
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How Alia's experiment will help humans get to Mars
Alia’s winning experiment examined how genes might change under the stresses caused by being in space, such as cosmic radiation and microgravity.
Her samples were placed in a machine on board the International Space Station. called a miniPCR thermal cycler, which can copy DNA multiple times.
After the samples were examined on return to Earth, scientists were able to successfully detect changes caused by being in space in the way DNA transmits instructions through proteins and other molecules in living organisms.
Although Alia’s samples were taken from nematode worms, the results have much bigger long term applications, especially for human space flight and long term missions, such as to Mars.
It also means that the first DNA experiments using human genomes can now be carried out on the ISS.
LA LIGA FIXTURES
Friday Athletic Bilbao v Celta Vigo (Kick-off midnight UAE)
Saturday Levante v Getafe (5pm), Sevilla v Real Madrid (7.15pm), Atletico Madrid v Real Valladolid (9.30pm), Cadiz v Barcelona (midnight)
Sunday Granada v Huesca (5pm), Osasuna v Real Betis (7.15pm), Villarreal v Elche (9.30pm), Alaves v Real Sociedad (midnight)
Monday Eibar v Valencia (midnight)
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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