The Burning Platform

By Quentin Fottrell

French actor Gerard Depardieu’s decision to renounce his citizenship in order to avoid paying taxes might be tempting to those moving into ever high brackets. But experts warn that making such an exit is often a complex and costly process.

Last weekend, Russian President Vladimir Putin granted Russian citizenship to Depardieu, who abandoned France after a bitter exchange over the government’s plans — stifled so far — to hike the top income tax bracket rate from a 46.7% ceiling, according to the OECD, to 75% for those who earn more than $1.3 million a year. He chose Russia, which has a flat tax rate of 13%, and where he is already a well-known figure. And Depardieu isn’t the first celebrity to pledge allegiance to a foreign flag. In 2012, billionaire Facebook co-founder Eduardo Saverin became a permanent resident of Singapore, although his spokesman at the time he was not motivated by tax rates.

The top rate of U.S. income tax is relatively high by international standards. As of Jan. 1, the 35% top rate of income tax increased to 39.6% for individuals with at least $400,000 of taxable income or couples with at least $450,000. Most countries fall comfortably below that rate. The exception: Western Europe. With an average top rate of 46%, it has the highest personal tax rates in the world, according to a 2012 survey by accounting giant KPMG. And plans by France to raise its top rate of income tax could obviously raise that average further.

Americans seem increasingly willing to decamp overseas. Nearly 4% of the population, or 11.8 million people, moved to a different county in 2011, the highest level since before the 2008 recession, according to new Census figures, the Wall Street Journal reported Wednesday. See Americans Get Moving Amid Torpid Recovery

In 2011, almost 1,800 people renounced their American citizenship and green cards, a sixfold increase over the prior three years. This, experts say, is partly because the U.S. is one of the few countries in the world to tax its citizens on income they’ve earned while living abroad. Moving overseas for a job is one thing, but experts say renouncing U.S. citizenship for another country is a much more involved — and expensive — process. “The government doesn’t just let you leave,” says Stu Anolik, managing director at professional services provider CBIZ MHM.

Before renouncing citizenship, those with a net worth greater than $2 million may also need to pay an exit tax. U.S.-based assets get taxed as if they were being sold at the fair market value the day before expatriation, says George Eves, co-founder and CEO of ExpatInfoDesk.com, an online resource for expatriates. “The exact requirements can be complicated and will vary from person to person,” he says.

With that in mind, we look at seven countries with top income tax rates that might appeal to Americans looking to change allegiances.

Czech Republic: 15%

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This Eastern European country has a flat income tax rate. As the Czech Republic is in the European Union, Americans with parents or grandparents from Ireland, Italy and Poland can get EU citizenship, and live here. Germany confers German/EU citizenship for children and grandchildren of former Germans who were deprived of their citizenship between Jan. 30, 1933, and May 8, 1945, on racial, political or religious grounds. Otherwise, applicants for Czech citizenship must have held a residency permit of the Czech Republic for at least five years, according to the Czech Ministry of the Interior.

Costa Rica: 15%

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While the personal top income tax rate is low, according to KPMG, the Costa Rica Tax Department says the top income tax rate rises to 25% for individuals who run a business. Citizenship requirements are slightly less onerous than for other countries. Central Americans, Spaniards and Latin Americans who have resided in the country for at least five years can apply for citizenship. Other foreign nationals who have resided in the country for at least seven years can also apply for citizenship.

Hong Kong: 15%

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Hong Kong is one of the most favorable tax systems in the world, experts say. Not only is its top tax rate here less than half the U.S.’s, investment income is generally not subject to tax in Hong Kong, although that doesn’t apply to property, according to KPMG. People who have declared their permanent residence in Hong Kong for seven years can apply for citizenship. Citizenship is also open to Chinese nationals who were born outside Hong Kong to a parent who, at the time of birth, was a permanent resident of Hong Kong.

Singapore: 20%

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Actor Jet Li became a citizen here in 2011. Given the standard of living, experts say the tax rate is low compared with the U.S. and most Western European countries. To apply for citizenship of this Southeast Asian nation, one must be a Singapore permanent resident for at least two to six years prior to the date of application, according to the country’s Immigration and Checkpoints Authority. Applying for permanent residency can also be an expensive and complex process. A person born outside Singapore where at least one parent is a Singapore Citizen is also eligible.

Jamaica: 25%

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Jamaica’s income tax rate is a flat tax, regardless of salary, and it kicks in after the tax-free threshold on low earnings, according to KPMG. People may be granted naturalization if they have lived in Jamaica for a minimum of five years immediately prior to the submission of the application, according to Jamaica Information Services, a government-run agency. They must also be “of good character” and financially solvent. Under Jamaica’s constitution, persons born in Jamaica and persons born outside of the country to Jamaican parents have an automatic right to citizenship.

St. Kitts and Nevis: 0%

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Whenever acquiring citizenship appears relatively easy, chances are it won’t be cheap. The Caribbean nation of St. Kitts and Nevis doesn’t have personal income taxes — excluding Social Security contributions. It’s also one of a few countries operating a “citizenship-by-investment” program, which requires a real-estate investment of a minimum of $400,000, plus application fees, or a contribution to a public charity of $250,000. With the exception of the spouse of the main applicant, dependents over age 18 owe an additional fee of $50,000 each.

Cayman Islands: 0%

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There are also no property or income taxes in the Caymans. While establishing residency or setting up a business here is easy, citizenship is generally not. In most instances, one must first become a permanent resident and live here for five years before applying for naturalization. The government takes qualifications, financial and property investment in the island into account when assessing applications. It also has the discretion to grant the right to be Caymanian to up to four persons a year without them first having to meet any residence requirement.