In December, US representative Darin LaHood, a Republican from Illinois, submitted a bill to Congress that would offer Americans living abroad with an elective residency-based income tax system.
This follows a campaign promise from Donald Trump in October, when he vowed to scrap 'double taxation' for Americans overseas.
READ MORE: Will Donald Trump really ease the tax problems of Americans in Europe?
As things stand, the US is one of a handful of countries that tax based on citizenship, rather than residency.
This is about more than just paying taxes - US citizens abroad often have to file two tax declarations every year (the US tax return plus a return for the country they are living in), they are constrained by IRS rules from certain types of investments in the country they live in, and the US FATCA law makes it harder for Americans to access bank accounts.
For many people, a system of residency-based taxation would be a welcomed change, freeing them from the filing headaches they deal with every year.
But there are pros and cons to introducing residency-based taxation - to get a better idea of how what taxation could look like for Americans abroad moving forward, The Local spoke with tax expert Jonathan Hadida of HadTax.
What's the latest?
The bill technically expired at the end of the 118th Congress (on January 3rd) and it needs to be reintroduced in the 119th Congress.
The draft as it was written would allow Americans abroad, including 'Accidental Americans', to opt for recognition as 'non-resident citizens' via a certificate of non-residency.
This certificate would make it so their foreign income is only subject to tax in the country they live, while US-sourced income would still be subject to US taxes. Those who have no US-sourced income would also be freed from the yearly US tax return.
Marylouise Serrato, the Executive Director of American Citizens Abroad told The Local: "We know that the bill has to be re-introduced to the Congress. We know that Representative LaHood is getting feedback on the bill.
"We do believe that there is sort of a deadline for tax legislation, which is linked to provisions in the Tax Cuts and Jobs Act (TCJA) that expire at the end of this year. I would anticipate that there will be a lot of activity in the first quarter on taxation, and this bill in particular."
Who would be able to opt for residence-based taxation?
There would be a few conditions to qualify, such as demonstrating US tax compliance for the five years prior.
As it is intended to be for Americans wishing to live abroad long-term, if the person returns to the US within three years, then it would be reversed entirely, leaving them subject to taxation for that period.
The bill in its current form sets up a mechanism for a 'departure tax', to avoid abuse. There are exceptions - for example, people whose net worth is below $13.61 million (as of 2024), or who have lived outside of the US for three of the last five years, or who have not been resident since March 2010 or since turning 25 years old would not be subject to the tax.
What would opting for residence-based taxation change for Americans in France?
Filing requirements - Based on first draft of the bill, anyone who opts for residence-based taxation would only be required to file IRS tax forms if they earn US-sourced income - so if you have no US-sourced income, then you would not need to file US tax forms.
That said, money classified as 'US-sourced income' is about more than just a salary. Jonathan Hadida clarified that US-based income might include "investment income, interest, dividends, capital gains, pension income, rental income, employment income.
"When it comes to pension income, the US is probably not going to give up their taxing right on US pensions, like social security, IRAs, 401Ks, and military retirement income."
It remains to be seen how this will be defined in the final version of the bill.
If, for example, a person were to have rental income in the US, "I would assume you would file a non-resident tax return, or the equivalent of one," said Jonathan.
As for other filing requirements related to FATCA (US legislation passed in 2010 to track money laundering) and FBAR (reporting foreign bank accounts whose aggregate value exceeded $10,000 at any time during the year), there are at present no details available.
Access to banking - FATCA is also an important factor in Americans' ability to access banking and loan services abroad. FATCA requires onerous reporting responsibilities for banks on their US-citizen customers, meaning that many European banks are reluctant to detail with Americans because of the extra paperwork involved.
In his press release, LaHood said the bill would address this and Americans would be able to show 'the certificate of non-residency' to foreign financial institutions. The hope is that banks would be more willing to deal with Americans if they have this certificate.
Hadida speculated that based on the current version of the bill, banking abroad may look different.
"Basically the bank would have to ask you: "What is your citizenship?" You'd say 'American' and you'd tell them that you opted for residence-based taxation. Then, you'd probably have to show them the certificate.
"This would help the Americans who have been here for many years, or Americans born abroad. But, someone who does not have the certificate yet would probably have the same issues as before."
Investing abroad - Currently, Americans abroad must be very careful of certain financial products in France, including some types of pension plan and investment options.
For example, in France, a popular investment option is the "Assurance Vie", a life insurance wrapper that holds investments, usually with a minimum deposit. To the IRS, it is considered a Passive Foreign Investment Company (PFIC), meaning the IRS requires detailed and complex reporting. As such, Americans abroad are advised to steer clear.
Elective residence-based taxation, as outlined in the first draft of the bill, could solve this problem.
Serrato explained: "The spirit of residence-based taxation is that it would allow Americans to invest locally. Because that income is foreign-earned income, it would be excluded from being filed to the US treasury."
Who would benefit from opting into residence-based taxation?
The key thing about the bill in its original draft form is that it gives Americans abroad a choice - they could either opt to stay with the current system, or decide to declare themselves as non-resident citizens.
Exactly who benefits from each choice is complicated and depends on personal circumstances - and as ever people are advised to take independent financial advice from a qualified expert.
"I don't know if opting into residence-based taxation for a person living in France, if it is better for you. There's a lot to consider (...) you will want to consult an expert to weight the consequences before deciding to opt in or out" Hadida said.
Hadida explained that the equation will come down individual facts and circumstances, namely related to "where you want to invest and where you have lived your life".
"If you're 70 years old and you're coming to France and you've had everything in the US. You're not going to want to change everything over to France.
"The generalisation would be that Americans retiring in France are probably better served with current situation (citizenship-based taxation). Individuals with large amounts of investment income in the US are also probably better off with the current situation.
"Those who want to invest like a French person - in SCIs and French companies and what not - are probably better off with residence-based taxation.
"And for someone wanting to invest in both countries, they will have to weigh their choices and consult with an expert. It won't be an easy question." Hadida summarised.
Currently, Americans in France benefit from a generous bilateral tax treaty, which Hadida calls 'the bees knees for American retirees'.
"US-sourced pension income is only taxed in America. That means when you take money out of your 401(K) or IRA, those are taxable at your tax bracket in the United States," Hadida explained in a previous interview.
"From a French perspective, we will have to see what happens with the treaty, but as things stand, you have to show you paid taxes to America, and to benefit you're better going down the road to citizenship-based taxation.
"If the income was not taxed in America, because you've elected to be treated as a non-resident, well I don't think France is going to give you the deemed tax credit anymore," he said.
The tax expert explained that this advice is specific to France, thanks to the treaty, but it would be different for people in different countries, particularly low-tax regimes like the UAE.
Ultimately, Hadida stressed that LaHood’s bill is draft legislation, and it could take a different form upon re-introduction with the 119th Congress.
"Everything is contextual and case-by-case. We are not sure what the rules are going to be, but if someone (in France) has a large amount of US investment income or has spent most of their life in the US, then they are probably going to want to stay with citizenship-based taxation.
"In this case, residence-based taxation would probably only save compliance fees and a headache. But again, how you measure the stress of filing a tax return, that's up to each person," he said.
Do you have questions about the proposed changes? If so, leave them in the comments section below and we will do our best to answer them
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