The United States sits 111th out of 217 in our world ranking, with a FiScore of 5.1 out of 10. That middling score describes the rates. It says nothing about the thing that makes American tax unlike anywhere else.
The United States taxes its citizens on citizenship, not residence. Moving abroad does not end your obligation. It adds a second one.
What moving abroad actually gives you
Not an exit. Relief mechanisms.
The foreign earned income exclusion removes a slice of earned income from US tax, provided you meet either the physical presence test or the bona fide residence test. It does not touch investment income, dividends, capital gains or pensions.
Foreign tax credits offset US tax with tax you paid elsewhere. Notice the shape of that: credits only help if the other country actually taxes you.
That second point is the one that reverses most people's intuition. Moving to a zero-tax country generates zero credit, so your US bill stands in full above the exclusion. An American in Dubai, the Cayman Islands or the Bahamas often pays more US tax than an American in Germany, because the German tax generates credit and the Emirati tax does not exist.
If reducing tax is the goal, a moderately-taxed country can beat a zero-tax one. That is counterintuitive and it is arithmetic.
The reporting, which has teeth
FBAR is due once your foreign financial accounts exceed 10,000 US dollars in aggregate at any point in the year. Aggregate, not per account, and the threshold is low enough that almost every expatriate crosses it.
Form 8938 applies above thresholds running from 50,000 to 600,000 dollars, depending on filing status and whether you live abroad.
Both carry penalties that are severe relative to the amounts involved, and both are separate from the tax return itself.
Renunciation, and the exit tax
The only complete exit is giving up citizenship, and it has a price attached.
You are a covered expatriate, and exposed to the US exit tax, if you meet any one of three tests:
| Test | Threshold |
|---|---|
| Net worth | 2 million USD or more, worldwide |
| Average tax liability | more than 211,000 USD a year over the previous five years, for a 2026 expatriation |
| Compliance | you cannot certify five years of full US tax compliance |
The third test is the one that catches people. It has no wealth threshold at all. An unfiled return, a missed FBAR, an unreported account in the last five years, and you are covered regardless of how modest your assets are.
Being covered triggers a deemed sale of your entire worldwide estate on the day before expatriation, with tax on the resulting gain above an exclusion amount. It also affects how future gifts and bequests from you to US persons are taxed, which is a long tail most people do not consider.
The practical order
Fix the compliance history before renouncing, not after. Five clean years is the third test, and it is entirely within your control if you start early enough. Streamlined procedures exist for people who were genuinely unaware.
Model the destination properly. If you are staying American, a country that taxes you may cost you less overall than one that does not. Run both.
Get advice from someone who does cross-border work daily. This is the single area covered on this site where general information is least sufficient, and where the cost of a mistake is highest.
Where to go from here
Our general guide to leaving covers the sequence that applies to everyone. The destination guides all carry a section on what they mean specifically for Americans, because the answer is different from what it is for anyone else. Mexico and Portugal generate real credits; the UAE and the Cayman Islands generate none.
Sources
Rules and thresholds verified in August 2026 against IRS published guidance on expatriation, FBAR and Form 8938. An error reported to us gets fixed.
This page informs, it does not advise. Renouncing citizenship is irreversible and its tax consequences are permanent: talk to a specialist before acting, as our terms of use set out.