What Is the Financial Impact Of Dual Citizenship?
This post is a guest post by CitizenPath, an online provider of immigration solutions.
On the surface, dual citizenship is a wonderful benefit. It offers the conveniences of belonging to two different countries. There are some definite advantages to dual citizenship. However, upon analysis it gets a little more complicated. High net worth individuals especially should analyze the advantages and disadvantages of becoming a citizen in two countries.
Each country has its own laws and policies concerning dual citizenship. Before you jump in, it’s prudent to see how it could affect your situation. There are some important elements to understand. Dual citizenship is a benefit for most people, but it can also have financial consequences - good and bad.
What is dual citizenship?
Dual citizenship, also called dual nationality, happens when someone belongs to two different countries. It can happen automatically or through an application process. For example, a child born in the United States to foreign national parents generally is a U.S. citizen by law. In most cases, the child is an American citizen and his parents’ home country. (There is an exception for children born to foreign diplomats.) Likewise, when the child of U.S. citizens is born in another country, the child is a U.S. citizen. He or she may also be born as a citizen of the country of birth. This depends on that specific country’s nationality laws. Additionally, a foreign national who naturalizes as a U.S. citizen can potentially become a citizen of two nations.
Certain high net worth investors may also be eligible for programs that provide a pathway to citizenship in exchange for stimulating economic growth. For example, USCIS offers an EB-5 program which encourages investment in the U.S. economy. Entrepreneurs, including their spouse and children, can obtain a green card if they make an investment in a commercial enterprise and plan to create (or preserve) 10 jobs.
Who is eligible?
The United States does not advocate dual citizenship, but it does allow it. That’s not true of all countries. Some countries strictly forbid maintaining citizenship in another country. Thus, citizens of these countries may have to decide if they prefer citizenship in the United States or their country of origin.
There are some great benefits for dual citizens.
A dual citizen may receive double the benefits and privileges. In most cases, they can vote in either country, potentially run for office, and take advantage of increased employment opportunities.
Dual citizens can generally own property in both countries. Some countries have limitations on real estate and land that restricts ownership to citizens only. As a legal citizen of two countries, you may have the right to acquire property in both countries. This is a significant perk for diversification, frequent travelers who want a home in both countries, and those with long-term retirement plans.
Another benefit of dual citizenship is that it may open up business opportunities that are only available to citizens. In some countries, certain investments and employment may be limited to citizens of that country. In the United States some government employment opportunities are only available to US citizens. According to the Migration Policy Institute’s report on The Economic Value of Citizenship for Immigrants in the United States, naturalized U.S. citizens earn between 50 and 70 percent more than non-citizens.
Dual citizens can generally take advantage of passports from both countries. In many cases, a passport can eliminate the need for visas and extra scrutiny about your trip. Through the visa waiver program and similar arrangements in other countries, travelers can gain increased global mobility. For global travelers, this benefit can offer significant time savings and remove some of the hassles from international travel.
Once an individual naturalizes in the United States, he or she will generally pay no other USCIS fees. Based on the current cost of a 10-year green card renewal, this could be a lifetime savings of $5,313 according to CitizenPath’s cost calculator. Permanent resident children automatically become U.S. citizens (at no extra cost) when their parents naturalize. This is an additional savings.
If offered in those particular countries, citizens with residence in both countries can generally attend university in either country at the citizen tuition rate. This may provide significant savings for families with students that will study abroad. There are also certain financial grants and college scholarships only available to citizens of certain countries.
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There are also some potential financial drawbacks for dual citizens.
With the good may come some tradeoffs. Dual citizens may be bound by the obligations of both countries. Depending on the laws of each country, there could be increased responsibility to meet legal requirements of residency.
As a citizen of two countries, you may also have double the obligations. The U.S. has a volunteer military, but some countries may have mandatory military service. Generally, U.S. citizens may meet these mandatory requirements in foreign military service without jeopardizing their U.S. citizenship. However, under certain circumstances, U.S. citizens who serve in a foreign military can lose citizenship.
Related Article: When Do You Need To File Form 8938 "Statement Of Specified Foreign Financial Assets"?
One of the clear negative components of dual citizenship is the potential for double taxation. This is a situation in which you owe income taxes in both countries. The U.S. government assesses taxes on American citizens for global income. Therefore, a dual citizen who has earned income abroad you may owe U.S. taxes on that income. Plus, there may be tax in the country where the income was earned.
Fortunately, there are income tax treaties and foreign tax credits/exclusions established that can reduce or eliminate the U.S. tax liability in some situations.
Related Article: 4 Ways To Reduce Taxes On Your Foreign Income
Related Article: Can I Take The Foreign Tax Credit?
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Your best move
Dual citizens get to double dip in certain benefits, including the ability to live and work in two countries. It provides the freedom to travel between countries more easily and may open the door to property ownership and business opportunities in both countries. On the other hand, there can be some disadvantages. Most significant is double taxation.
Dual citizenship can be complex because the rules and laws regarding citizenship vary from one country to the next. That’s because each country has its own unique immigration and tax laws. How these laws affect you and your family are unique to your situation. To unravel the complexity, consult with an immigration attorney and/or tax expert who can analyze your scenario.
Related Article: Beware The Exit Tax - Giving Up Your US Citizenship or Green Card Can Be Costly
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