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South Africa recently introduced new legislation that means many citizens working abroad that were previously exempt from paying income tax are now required to do so. It is also common knowledge that citizens of the United States are required to pay tax to the US government even if they do not live or work in the US.

Many countries have a huge diaspora due to bad governance, discrimination against specific ethnic groups or general corruption. The members of the diaspora would typically be seen as being hostile towards the government, so implementing policies that disaffect them would not be a problem for said government. Many of the diaspora would also reside in countries that have tenuous, even hostile, relationships with the home country.

So what prevents this government from suddenly claiming income tax from these citizens? They would increase their coffers at little expense, disaffect a part of their population that they don't care much about anyway (this may even improve their standing with their remaining electorate), and as a bonus redirect valuable capital from another country into their own coffers. Even if only a fraction of the diaspora comply with the law in order to maintain their good legal standing at home, it would still seem to be a profitable strategy.

Why do we not see this happening more often?

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    When you say "all earnings of Iranians living in the US" do you mean Iranian citizens who happen to live in the US?
    – Fizz
    Jan 13 at 10:21
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    @Fizz, yes. I fixed the title to make it more clear.
    – firtydank
    Jan 13 at 10:22
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    Well, I suppose nothing beyond the willingness of their citizens to pay and what their incentive is to remain citizens of that country. Other than that, it might violate tax agreements between the countries, but those are usually bilateral and a matter of negotiations.
    – Hulk
    Jan 13 at 10:24
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    See for example this list of (EU) Treaties for the avoidance of double taxation concluded by Member States
    – Hulk
    Jan 13 at 10:27
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    People can renounce their citizenship, although some countries make it hard. It's certainly the case that some US citizens are doing that because of tax issues bloomberg.com/opinion/articles/2020-08-31/…
    – Fizz
    Jan 13 at 10:29
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What prevents this in general is the practical ability to collect. The US can collect on its citizens living abroad in part because (even foreign) banks really don't want to end up on the bad side of the US government, so they try to obey FATCA (Foreign Account Tax Compliance Act).

Few foreign banks would probably give a hoot if the Iranian government imposes some sanctions on them.

Furthermore, in an extreme case, the host country could pass legislation or regulations that practically nullify such foreign tax claims, although I'm not aware of specific instances (there might be some related to wars).

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    But FATCA is just a few years old and US tax policy toward its citizens living abroad is decades old. The first sentence of the answer is therefore demonstrably incorrect.
    – phoog
    Jan 14 at 9:15
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    @phoog yes the details are. But the mindset behind them is not: the US is in a position where they can collect enough of this foreign-based tax to not be a laughable attempt. If most other nations tried it, the recovery rate would be so low that it'd likely cost more in bureaucracy
    – Hobbamok
    Jan 14 at 9:57
  • @phoog: you're correct, the US has much longer history of this. I just gave that as an example/contrast with a country which doesn't have such means. It's more or less the tax equivalent of "exorbitant privilege".
    – Fizz
    Jan 14 at 10:14
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    @phoog : Even without FACTA, it's still valid to say that "even foreign banks really don't want to end up on the bad side of the US government"
    – vsz
    Jan 14 at 15:33
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    I'm not sure that it's really the ability of the U.S. government to pressure other countries that has much effect on the ability to collect. I'd say it's much more a matter of how much the foreign-resident citizens actually value their citizenship. If they never intend to return to their home country at all, then they can renounce their citizenship and not owe taxes regardless of their country's influence. And, on the flip side, if they do intend to return to their home country, they can be arrested upon arrival for tax evasion regardless of their country's influence.
    – reirab
    Jan 16 at 7:04
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There are two main issues:

  1. Knowing that such a citizen owes taxes.

  2. Compelling them to pay those taxes.

The first point can be simple if the other country maintains complete employment records and shares them with the government that wants to tax that employment. In practice, this raises a number of questions:

  • Are the employment records in the other country complete? If there is some wiggle room, this may provide a perverse incentive for the citizens facing the tax to engage in unreported employment. That's not only a problem for the country wanting to tax its citizens abroad, it also sustains the unwanted shadow economy in the other country.

  • To be fair on one's citizens, it seems sensible to tax all citizens working abroad equally. Why should an Iranian citizen in the US face an extra tax burden while another Iranian citizen in Canada would not? If such a tax were instituted and enforced for all Iranian citizens, then it would be a lot of work for the Iranian government to work with all those other governments.

  • Moreover, why would those other governments even want to cooperate on this. There's no bilateralism unless those other governments also wanted to tax their citizens in Iran. So while all that extra work might benefit Iran's budget, the other governments would have to cooperate without seeing anything in return. In fact, taxing Iranian citizens in those other countries would reduce their disposable income which in turn limits their discretionary spending.

As for the second point, enforcement is really hard. Unless these citizens are willing to pay the tax or they have some assets in their home country, it's hard to compel them to pay.

Looking at practical examples, it might push them to renounce their citizenship altogether, assuming they have the luxury of taking or already having citizenship in another country. That's what UK PM Boris Johnson did, presumably to avoid paying US tax on the sale of his UK home. According to the Guardian:

Boris Johnson has renounced his US citizenship, ending years of ambiguous loyalties and probably ridding himself of a hefty tax bill.

A list released by the US Treasury department showed the UK foreign secretary was one of 5,411 individuals to renounce his American citizenship in 2016.

In 2014 he publicly said that the US was trying to hit him for tax on the sale of his home in Islington, north London, something he said he regarded as “absolutely outrageous”, although he later reportedly paid the demand. The US tax authorities have been mounting a campaign to crack down on the earnings of dual nationals.

Another US tax even applies to non-resident non-citizens, the estate tax. As CNBC reported in 2015:

Under U.S. tax law, the estates of foreign holders of U.S. assets, such as stocks, real estate, or valuables, are required to pay estate taxes on those assets after the death of the owner. There’s even a handy piece of IRS paperwork — form 706-NA — to help calculate the tax.

But one veteran Swiss banker tells CNBC that this rule is widely ignored around the world, and the U.S. government has no way to know how much money it is owed under its own laws.

The result, the banker said, is that the U.S. Treasury is likely being deprived of billions of dollars each year.

Even an advanced tax collection agency like the IRS has not gotten around to overcoming these two issues in collecting the estate tax. As the CNBC article continues:

Exactly how much money foreigners owe in U.S. estate taxes each year is unclear — it appears to be a blind spot for the IRS. The tax-gathering agency publishes a detailed report every several years on what it calls the “tax gap,” or the difference between what taxpayers should pay and what they actually cough up to Uncle Sam. But the report doesn’t attempt to estimate overseas estate taxes.

“There’s no estimate for international noncompliance,” said an IRS official. “That’s kind of the 800-pound gorilla that’s not in the room.”

A back-of-the-envelope analysis by CNBC of estate tax payment patterns and total foreign holdings of U.S. stocks and real estate concluded that the IRS is missing several billion dollars in foreign estate taxes each year — money that could help a cash-strapped U.S. Treasury pay the nation’s bills.

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    Great answer. I find it surprising that this does not raise issues of sovereignty. Surely a country should be concerned if valuable income is sent to an foreign (even hostile) government rather than being invested at home? Yet it seems that there is no specific prohibition against this.
    – firtydank
    Jan 13 at 10:57
  • @firtydank income tax on US citizens living abroad is levied as the difference between what they paid in their host country and what they would pay in the US, so the host government is not deprived of any funds.
    – gormadoc
    Jan 13 at 23:12
  • @gomadoc - Sure, but it's still wealth transferred to the US rather than being spent in the local economy.
    – firtydank
    Jan 14 at 7:43
  • @firtydank - Is it really worth it to fight U.S. on this? Any international relationship is a balancing act and U.S. is a large powerful partner/opponent. What's the potential benefit of going through all the trouble to potentially antagonize the U.S. for a potential chump change? After all, how many dual citizens giving away how much money are there?
    – mishan
    Jan 14 at 12:41
  • @mishan My question is not really about the US, but about corrupt poorer countries using the same legislation as the US in order to get access to foreign taxes.
    – firtydank
    Jan 14 at 14:12
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The main issues are the unjust burden of double taxation and international relations.

Double taxation could be solved by asking to provide evidence of the taxes paid locally, but it would still add a burden in the form of extra bureaucracy.

By international relations I mean that taxing expatriated citizens means collecting taxes from the economy of another country. The US can interfere in the economies of other countries due to its power, but I don't know how South Africa's decision will be taken. I assume that the move was prepared with a lot of private talks in the diplomatic circles. At least there must have been the undeclared assent of the UK, the US and Australia where most of the of the diaspora moved.

Another point that may discourage other countries with a huge diaspora from adopting the same approach is the fact that remittances usually are a big source of foreign money for many of them. So, such a move might backfire.

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    The US uses the Foreign Earned Income credit, which allows expatriates to deduct some or all of their foreign earnings from US taxable income. The burden is mainly on the person filing the taxes, the IRS doesn't really have much extra bureaucracy due to this. You are correct that tax collected by the home country is money that could otherwise be spent in the host country, but I'd have to imagine this is an extremely tiny slice of the host country's economy - would that really sour international relations? Jan 13 at 21:56
  • "You are correct that tax collected by the home country is money that could otherwise be spent in the host country," No, that's not right. The problem is that the home countries will tax what is produced (as a product or as a service) in the host country.
    – FluidCode
    Jan 13 at 22:58
  • "The US uses the Foreign Earned Income credit" Yes, but if a country chooses a different tax policy than the one of the US, E.G. by imposing lower tax rates on lower brackets and higher on higher brackets the US will apply their own policy and collect the difference.
    – FluidCode
    Jan 13 at 23:02
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    @FluidCode not quite. An expatriate US citizen excludes a little over 100k of earned income before figuring the tax, so unless the person has a very high salary indeed, there won't be any tax owed at all.
    – phoog
    Jan 14 at 9:22
  • @FluidCode To phoog's point, lower-tax-bracket people won't owe U.S. taxes on foreign income at all. Higher-tax-bracket people living in a country that taxes its higher brackets at a higher rate than the U.S. will have a negative difference. It's really more the other way around where the U.S. foreign taxes get paid: higher income earners who are resident in countries with lower tax rates for higher income earners.
    – reirab
    Jan 16 at 7:10
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The other answers already make some good points. However I want to add something. I think some of your assumptions are not correct in some important cases.

For example a big part of the Turkish diaspora in Europe is, despite living outside Turkey, quite nationalistic and fiercely loyal to the current governing party. See for example the photo below of a pro AKP/Erdogan-rally in Cologne (Germany) in July 2016.

So I think the powers that be in a country sometimes have quite some support among the diaspora and don't want antagonize them by imposing taxes on them.

enter image description here

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    I never said all expat communities have a hostile relationship to their home governments.
    – firtydank
    Jan 13 at 16:10
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While the other answers put forward various practical reasons, I must note that the current situation is that in principle a country does tax its citizens for their "global income".

Assume for simplicity that your home country is also your tax residence.

Then, bilateral tax-treaties enter the picture, mainly to avoid "double taxation". While they are not carbon-copies of one another, the usual provisions are either a) If you were taxed to the country of earning, your home country will not tax you OR b) You report the foreign income and the tax paid to your home country and your home country may charge you with the difference, if your home country's tax rate is higher than the tax rate of the earning country.

This means that you essentially pay the maximum tax rate -in some cases part to the one country, part to the other. What you don't pay the sum of the two tax rates. This is the meaning of "avoiding double taxation".

Moreover, provisions in these treaties may vary per source of income (from labor, from fixed assets, from royalties, from land, etc).

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    I must note that the current situation is that in principle a country does tax its citizens for their "global income". That's not true, save for a handful of exceptions (most famously the US, hence the question). Many countries tax residents based on their worldwide income. This confusion leads you to completely fail to address the question. Obviously, many pairs of countries don't have a tax treaty between them.
    – Relaxed
    Jan 14 at 21:43
  • @Relaxed I already wrote that "assume for simplicity that your home country is your tax residence", so I don't understand your first part of the comment. Moreover, when a tax treaty does not exist, you do face the prospect of being taxed twice. Actual enforcement of that is another matter, as I also noted. Jan 14 at 22:09
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    Yes, I noticed that but that doesn't really address my point. Not sure how I can explain it more clearly. If you have only one citizenship and your live in your country of citizenship, that distinction might not matter but you are still being taxed qua resident, not qua citizen. Meanwhile, many people are in a situation where that distinction matters and that's precisely what this question is about.
    – Relaxed
    Jan 14 at 22:17
  • Whether the distinction matters or not to any one taxpayer and even if enforcement was non-existent in practice, it remains the case that, in principle, most countries tax their residents (or people with some local property or economical interests), not their citizens.
    – Relaxed
    Jan 14 at 22:20
  • I concur with @Relaxed. This answer has missed the point of the question. We're not talking about taxation of foreign income on residents (which is fairly common, and is what this answer has addressed), we're talking about taxation of foreign income on non-resident citizens, (which is extremely rare, and what the question is about).
    – JBentley
    Jan 16 at 14:52
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They wouldn’t raise anything like as much money as you think they would, if they did it like the US does, because of double-taxation treaties. In practice, the US only taxes money earned by its citizens abroad that’s not already been taxed by their country of residence. So, for example, US citizens in the UK are advised not to open tax-exempt ISA accounts, because they’ll have to pay US tax on those accounts since the UK government won’t tax them. But they don’t pay US tax on their UK salaries.

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