Give up your US Citizenship to Save Taxes
It is well known in the international tax forums that US citizens tax planning is an impossible mission.
As reported in the LA Times: Facebook’s Eduardo Saverin gives up citizenship: Shrewd tax move?
“Here’s a tax tip for Mark Zuckerberg: Give up your U.S. citizenship. The 27-year-old Facebook Inc. founder could face a tax bill of more than $1 billion after the company’s initial public offering, expected next week. His former Harvard classmate who is known as “the other Facebook founder” may have found a way to cut the bill. Eduardo Saverin, who now lives in Singapore, has given up his U.S. citizenship. Tax experts say it’s a shrewd move. Saverin, who was immortalized in the film “The Social Network” as Zuckerberg’s contentious former friend and business partner, has a 4% stake in the company, according to the Who Owns Facebook? website. His stake could be worth nearly $4 billion after the IPO.
“It’s definitely savvy tax planning,” said Edward D. Kleinbard, a professor of law at USC who specializes in federal tax policy and international taxation. “He can argue that the value of the Facebook shares in September, when he gave up his citizenship, were significantly less than the value that will be set at the IPO next week.”
Saverin’s spokeswoman said his decision to jump ship had nothing to do with the upcoming IPO and the potential tax liability.
“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Sabrina Strauss said in an emailed statement. “He plans to invest in Brazilian and global companies that have strong interests in entering the Asian markets. Accordingly, it made the most sense for him to use Singapore as a home base.”
Regardless, tax experts say that Saverin’s decision to renounce his U.S. citizenship has financial benefits.
Reuven Avi-Yonah, director of the international tax program at the University of Michigan’s law school, said it was likely that Saverin and the IRS will disagree on how much exit tax Saverin owes, but it could be as much as $150 million. That’s a big number, but it might still be less than the taxes Saverin would owe if he stayed in the country.
Saverin, 30, was born and raised in Brazil and moved to the United States in 1992. He became a U.S. citizen in 1998 and has spent the last four years living in Singapore.
Singapore does not have a capital gains tax, although it does tax income that is earned in the city-state, according to a government website.
Saverin is currently No. 634 on the Forbes list of billionaires, with an estimated wealth of $2 billion.
A recent profile of the notoriously media-shy Saverin published in the Wall Street Journal describes the him as a wealthy playboy who lives in a pricey penthouse apartment. The article described the local fascination with his every move as “Kardashian-like.” Saverin is one of 1,780 former Americans who renounced citizenship last year and is at least the second billionaire to give up his U.S. passport in the last 20 years. In the mid-1990s John Dorrance III, heir to the Campbell’s Soup fortune, renounced his U.S. citizenship and moved to Ireland before selling his 10.5% stake in the family business.”