Four out of five American expats thinking about giving up passport due to Foreign Account Tax Compliance Act, according to a new surver by deVere Group.

Four out of five American expats thinking about giving up their passport due to Foreign Account Tax Compliance Act, according to a new survey from finacial advisory firm deVere Group survey.

FATCA came into force on 1 July and requires all financial institutions outside of the US to regularly submit information on financial accounts held by American citizens to the US Internal Revenue Service. Those who are not compliant will suffer a 30 per cent withholding tax on income and gross proceeds, as of January 2015.

The survey, which was carried out this month and interviewed 414 American expat clients, found that 79 per cent said they had “actively considered”, “are thinking about,” or “have explored” the options of' renouncing their US passport due to FATCA, up 11 per cent last November.

deVere said that 14 per cent said they would not consider giving up their US citizenship and 7 per cent did not know.

"The 11 per cent jump in the number of Americans who are tempted to sever official ties with the United States highlights how the true scope of FATCA's adverse effects is now really hitting US citizens who live or work overseas," said Nigel Green, deVere Group's founder and chief executive.

However, renouncing citizenship may in fact be nothing more than a futile gesture for US expats. The US State Department says on its website that anyone considering taking such action “should be aware of the fact that renunciation of US citizenship may have no effect whatsoever on his or her US tax or military service obligations”.

Green said that respondents of the latest survey flagged up specific problems, such as not being able to open bank accounts in their countries of residence, having existing ones shut down by banks, or the costs and lengthy processes of complying with FATCA.

"Some told us that they felt they were now under suspicion by the IRS, even though there was no question of any wrongdoing or having any taxes owing," said Green

"It's our experience that most American expats are proud patriots and are loathed to give up their US citizenship. With this in mind, and taking into account other potential considerations, including 'exit taxes', it is recommended that expats explore all the available options to them about how to mitigate the effects of FATCA with an independent financial advisor with cross-border expertise before citizenship is renounced," Green added.

Citizenship

It has been suggested that the US crackdown on tax evasion has prompted some Americans living abroad to give up their citizenship.

According to Treasury Department figures published in the Federal Register last year, 3,000 US citizens handed in their passports - three times the average of the past five years. While the Treasury has given no reasons for why they handed back their passports and green cards, many observers believe that the dramatic spike over previous years is due to them wanting to avoid paying taxes as a result of FATCA.

In the first quarter of 2014, 1,001 Americans gave up their passports or green cards, an increase of 47 per cent on the same period last year. It is also expected that a record number of US citizens will give up their passports this year, meaning more than 3,000 are forecast to do so before the end of 2014.