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PostDual Citizenship and the Tax Man; from Ric Mauricio (John Eipper, USA, 05/05/17 5:18 am)
Ric Mauricio writes:
Several years ago I visited Beijing to give a presentation to American expats living there on the importance of filing their US tax return, even though they do not live here and they may not owe any taxes (if they have a good tax advisor).
And yes, in order not to get into trouble with the PRC government, it was held in a public forum. While the presentation was intended only for American expats, it turned out that several wealthy Chinese attended as well. And the question came up on the advantage of Chinese nationals having their baby born in the US, thus acquiring US citizenship. Most people would think of it as an advantage. But I pointed out to them that when that child grows up and even though the PRC and the US do not recognize dual citizenship between the two countries (at this time), both governments will require that the child file a tax return in their respective countries; yes, even though that child may never set foot in this country. In other words, you have just penalized your child without them having a say in it. They now have to file a FINRA and FATCA report every year as well, if their assets go beyond a certain point. I am currently working on a tax return for my American expat clients in Italy and even though they don't owe, they still need to file and also complete the FINRA report on their bank accounts in Italy.
After all had left, a gentleman came up to me and identified himself as a representative of the PRC government (which agency I do not recall). Oh, boy, I'm in trouble now, I thought. However, he concurred with me that indeed having your child born in the US and automatically acquiring US citizenship can be a dumb thing... but it is impossible to keep people from doing dumb things. We had a good laugh.
Now if that child does emigrate to the US, becomes wealthy, but now doesn't want to be a US citizen anymore, he/she faces a hefty exit tax on their US assets. Not a good thing. The US-China is a double whammy, since both countries do tax on worldwide income.
So be very careful with the multiple citizenships when it comes to taxes. It can be quite burdensome.
JE comments: I'd like to know more about Chinese "birth tourism" to the United States. It's hard to pinpoint a number, but one source says there were over 60,000 such births in 2014. Most took place in California. See also this recent piece from the LA Times. It's clear that the goal is not financial per se, but to establish a safety net should there be a collapse in China's political system.