RBT - an alternative to Citizenship-Based Taxation
As an alternative to Citizenship-Based Taxation (CBT), the system under which the US currently taxes its overseas citizens, American Citizens Abroad (ACA, Inc.) proposes an new system which we are calling RBT "Residence-Based Taxation."
Under RBT, Americans and green card holders who reside overseas would have the possibility, if they so elect, to be taxed by the United States on the same basis that the US currently taxes non-resident foreign nationals, which means:
- US source income would be taxed through withholding taxes determined by US tax law and bilateral tax treaties on all US source unearned income (including dividends, interest, royalties, pensions, passive rents from US properties, etc.).
- Income earned in the United States by Americans abroad, income from participations in US partnerships and compensation for self-employment services performed in the United States would be taxed, as the case may be, either by a withholding tax at source or by reporting income on 1040NR.
- Investments in US real estate remain subject to local real estate taxes and to the provisions of Foreign Investment in Real Property Tax Act (FIRPTA) at the time of sale.
RBT includes anti-abuse measures; it is aimed solely at Americans who are overseas residents, in no way at tax evaders who are US residents, but hide their assets overseas.
RBT resolves incompatibilities between CBT and FATCA, the Foreign Account Tax Compliance Act.
ACA expects a great majority of Americans resident abroad to elect RBT.
ACA views RBT as a win-win solution:
- to create a positive tax revenue flow for the United States;
- to create new job opportunities, both within the United States and overseas;
- to enhance US competitiveness and export potential;
- to align US tax policy on individuals with that of the rest of the world;
- to streamline the taxation of Americans living and working abroad;
- to rationalize and reduce the administrative burden of the IRS in a cost-effective way;
- to reinforce synergies between Americans abroad and the United States.