Citizenship-based taxation: Only the United States

Systems of personal income tax vary enormously around the world. The differences are big and small, simple and complex. Some countries’ personal income tax code consists of one word – “none” – while other countries’ consist of volumes and volumes of intricate details.

However, almost all nations are unified on one point: a country only taxes non-residents on, at most, income earned within the country. Residents are fully taxed by the country according to its tax code. But if you don’t live there, then your personal income tax obligation to that country is limited to, at most, tax on only the income earned within that country. This is the essence of what is called “territorial taxation”.

The United States is an exception.

The USA is one of the few countries of the world which levies personal income tax on all its citizens: not only on its residents – citizens or non-citizens – but also on its citizens who do not live in the country. All citizens of the United States are taxed under the same personal income tax system, regardless of whether they live in the country or abroad.

This citizenship-based taxation is very unique. How unique?

Only the US

Several countries tax non-residents for a short period after they move abroad. For example, an individual who leaves a country may continue to be taxed until he has been a non-resident for at least 6 months or a year or two. Eritrea is often cited as a citizenship-based tax regime, but it hardly compares to the US as it only applies a 2% tax charge.

But permanent, lifelong taxation regardless of residency is extremely rare. Various countries have experimented with citizenship-based taxation, but only the US applies the same tax regime to all its citizens, regardless of where they live.