What do all of the following countries have in common?:
- Brunei Darussalam
- Cayman Islands
- Saudi Arabia
- United Arab Emirates
Give up? The answer is that none of these countries have any individual income taxes. They are the only countries in the world with this distinction.
You'll notice that eight of these are oil rich countries, seven of which are located in the Middle East. The other two--the Bahamas and Cayman Islands--are tax havens in the Caribbean. They are all able to finance their governments without income taxes.
Wouldn't it be great if you could move to one of these countries and stop paying U.S. income taxes?
Forget it, it won't work.
You can't avoid United States income taxes simply by moving outside the country. U.S. citizens who live abroad are still subject to U.S. income taxes and must comply with the same income tax filing requirements that apply to U.S. citizens living in the United States. (However, you may be able to exclude from U.S. tax a limited amount of your foreign income, if any.)
You can avoid the long arm of the IRS only if you renounce your U.S. citizenship and become a citizen of one of these tax-free countries. This likely won't be easy, since most of these countries do not hand out citizenship to foreigners easily, or at all.
Moreover, renouncing your citizenship can be expensive if you're well off because the United States imposes a stiff expatriation tax. For 2013, individuals with a net worth over $2 million, or with average annual income taxes exceeding $155,000 for the past five years, must pay income tax on their gains on all their of assets valued as if they were sold the day before they expatriated (subject to a $668,000 exclusion).
It's often cheaper to stay in the U.S.