United States Country Profile:

Citizenship-Based Tax and the Reality of Escape

The US is the only major country using citizenship-based taxation. For US citizens abroad, US wealthy families structuring internationally, and non-US persons using US structures, the framework is fundamentally different at every level. Understanding Citizenship-Based Taxation (CBT), the Foreign Earned Income Exclusion (FEIE), Puerto Rico Act 60, and Section 877A renunciation matters for every US person considering cross-border planning.

🇺🇸 Key Facts (2026):

  • Currency: US Dollar (USD).

  • Federal personal income tax: progressive to 37%.

  • State income tax: varies wildly (0% in Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Tennessee, Alaska, New Hampshire on wages; up to 13.3% in California).

  • Net Investment Income Tax (NIIT): additional 3.8% on investment income above thresholds.

  • Capital gains: long-term 0%, 15%, or 20% depending on bracket; short-term at ordinary rates.

  • Corporate tax federal: 21%; state adds varying amounts.

  • Federal estate tax: 40% on estates above exemption (USD$13.6 million in 2024, scheduled reduction in 2026 unless extended).

  • Foreign Earned Income Exclusion (FEIE): approximately USD$126,500 in 2024, indexed annually.

  • Section 877A expatriation tax: mark-to-market for covered expatriates on renunciation.

  • CRS participation: no (US uses its own FATCA framework).

  • FATCA: bilateral agreements with over 100 partner countries.

  • Population: approximately 335 million.

  • Weather: enormously varied. Coastal California mild Mediterranean similar to southern Spain. Florida subtropical, comparable to south-eastern Australia. New England four distinct seasons with cold winters. Pacific Northwest cool and rainy similar to UK. Texas and Southwest hot summers, mild winters.

  • Stability and security: constitutional federal republic. Political and legal stability moderate-to-strong at federal level, but currently weakening. Personal safety varies enormously by location; urban crime rates in specific cities much higher than other developed countries, and higher than many developing countries.

  • Banking and financial infrastructure: world’s largest, sophisticated. Extensive commercial banks (JPMorgan Chase, Bank of America, Wells Fargo, Citi), investment banks, private banks. Full global connectivity. New York is a leading global financial centre. Client protection meaningful through FDIC insurance and SIPC.

Last edited: 15 June 2026 by Joe Hanson (Director & Global Partner) with advice from FTR Local Tax Partners

Why the United States Matters

The US is the only major country with citizenship-based taxation, meaning US persons owe US federal tax on worldwide income no matter where they live, with FEIE, FTC, and PFIC rules shaping every cross-border decision. It’s simultaneously an unmatched place to build wealth (deep capital markets, Delaware/Wyoming LLCs, US brokerage access) and the hardest to leave (Section 877A expatriation tax on covered expatriates).

Non-US persons often use US structures for their strengths while carefully avoiding US-source income and situs-based estate tax.

The IRS is one of the most aggressive and well-resourced tax authorities/law enforcement agencies on earth, meaning planning tax properly matters.

Info-Sharing Reality (CRS and FATCA)

The US is the notable non-participant in CRS. Instead, FATCA operates asymmetrically: foreign financial institutions report US person accounts to the IRS, but the US does not reciprocally share equivalent data with most partner countries. This has made specific US-based financial products relatively opaque to non-US tax authorities, and made the US a de facto secrecy jurisdiction for certain non-US persons.

For US persons, Foreign Bank Account Report (FBAR) reporting is required for foreign accounts above USD$10,000 aggregate, and Form 8938 for specified foreign financial assets above thresholds. Both apply regardless of tax owed. Penalties for non-compliance are substantial.

Banking Reality

US banking is sophisticated, high-quality, and generally accessible to US persons and legal residents. Non-US persons face specific KYC and product access constraints, though many banks serve international HNW clientele through private banking channels.

Non-US persons can hold US Limited Liability Companies (LLCs), US-issued brokerage accounts (with Form W-8BEN filed), and various US-based investment structures with proper structuring. Not universally accessible; requires specific approach.

Cost Profile

Wide variation. Coastal urban areas (San Francisco, New York, Boston, Seattle, Los Angeles) among the world’s most expensive. Rural and Southern areas dramatically lower. Healthcare costs are the single largest personal financial risk for US residents without employer coverage.

For Retirees

US retirees have some of the most substantial retirement account infrastructure globally (Individual Retirement Accounts (IRAs), 401(k) plans, Roth IRAs). Post-retirement lifestyle in low-tax states (Florida, Texas, Tennessee, Nevada) or through relocation to Puerto Rico under Act 60 provides meaningful tax optimisation.

For US retirees emigrating abroad, Citizenship Based Taxation (CBT) continues. Moving to Portugal, Panama, or Malaysia does not eliminate US federal tax on worldwide income. FEIE helps only for earned income actually earned while physically abroad, not investment income or pension income.

The only meaningful escape route from US federal tax for retirees is renunciation of US citizenship (Section 877A expatriation), which is a substantial life decision.

For Digital Nomads and Remote Professionals

US citizen digital nomads remain fully US taxable. FEIE provides limited earned income relief (approximately USD$126,500 in 2024) if physical presence or bona fide residence tests are met. Investment income, dividends, capital gains remain fully US taxable regardless of physical location.

Puerto Rico Act 60 provides the only genuine US federal tax escape without renunciation, requiring bona fide Puerto Rico residency. Increasingly popular for US nomads with substantial pre-liquidity-event asset positions.

For Online Business Owners and Entrepreneurs

US business owners face fundamental structuring decisions around C-corporation vs S-corporation vs LLC vs sole proprietorship, each with distinct tax and operational profiles. Delaware LLCs and Delaware C-corporations dominate for various business categories.

For non-US business owners, US LLCs can be used as pass-through vehicles for US-market operations. Careful attention required to US permanent establishment analysis, Effectively Connected Income (ECI), Foreign Investment in Real Property Tax Act (FIRPTA) on US real estate, and various other US tax provisions.

Puerto Rico Act 60 export services regime (4% Puerto Rico corporate on qualifying service business income) available for US citizens genuinely relocating to Puerto Rico.

For HNW Investors

US HNW families with domestic focus have substantial estate planning infrastructure available: revocable living trusts, irrevocable trusts (Grantor Retained Annuity Trust (GRAT), Spousal Lifetime Access Trust (SLAT), dynasty trusts in various jurisdictions like Nevada, South Dakota, Alaska, Wyoming, Tennessee, Delaware), various sophisticated structures.

Federal estate tax exemption drops approximately 50% in 2026 unless extended, creating substantial planning opportunity for pre-2026 structuring.

Non-US HNW using US as Plan-B: US real estate ownership, US LLC structures for global business operations, US-based investment portfolios, and specific US territorial routes (Puerto Rico for the specific profile). Non-US persons face US estate tax on US-situated assets above a USD$60,000 exemption (dramatically lower than the exemption available to US persons), requiring proper structuring.

For Young Self-Employed Families

The US offers world-class private education (but it’s expensive, and public options are mediocre at best by developed-country standards), diverse lifestyle options, extensive employment infrastructure, and cultural depth. Cost profile and healthcare access are the main challenges.

For non-US young families, US immigration pathways include E-2 investor visa (for treaty country nationals), EB-5 investment (USD$800,000 or USD$1,050,000 depending on Targeted Employment Area (TEA) designation), various employment-based visas, and family-based routes.

The US is a great place to be if you have money, but not a good place to be if you don’t. It’s expensive, and there’s limited social safety nets.

Common Traps

For US citizens abroad:

  • assuming that moving abroad reduces US tax obligation (it does not without specific planning).

  • FBAR and Form 8938 penalty exposure for undisclosed foreign accounts.

  • Section 877A modelling failures for expatriation.

  • Non-US persons buying US real estate personally without addressing US estate tax exposure.

  • Puerto Rico Act 60 residency tests: IRS enforcement is increasing on claims without genuine bona fide PR residency.

Next Steps

US-focused planning across residence, business, or expatriation: book a scoping call.