Nomad Capitalist Chapter 5 Part 2: The Real Cost of Giving Up Your Passport
In Part 1 we covered why people consider renouncing US citizenship. The reasons range from philosophical identity issues to brutal financial realities like $330,000 annual tax bills. Now Henderson walks us through how renunciation actually works, what it costs, and what life looks like on the other side.
This is where theory meets reality.
The Eight Steps to Renouncing
Henderson breaks the process down into eight steps. It is not as simple as throwing your passport in the trash and sending an email. There is paperwork, interviews, fees, and taxes.
Step 1: Pick Your Embassy
You must renounce at a US Embassy or Consulate outside the United States. You cannot do it from inside the country. Henderson chose Tbilisi, Georgia, where the staff was friendly and even offered to see him the next day.
Not all embassies are this accommodating. Canada is swamped with renunciations from dual Canadian-US citizens and the wait can be six months. London, Dublin, Bern, and other major cities have long queues and sometimes require you to be a local resident just to get an appointment.
Henderson’s tip is classic Nomad Capitalist thinking. Go to a small, less obvious embassy. Shorter wait times, less bureaucracy, and some will let you complete everything in one day. The Bahamas embassy practically advertises the service.
Step 2: The Paperwork
Before your first appointment, you fill out the DS-4079 questionnaire. It asks about your personal information, when you learned you were a US national, your other citizenships and residencies, military service, and ties to the US. You do not sign it until you are in front of the consular officer.
There are several other forms - DS-4080, 4081, 4082, and 4083 - covering your oath of renunciation, statement of understanding, and witness attestations. Most of these are just checkboxes, dates, and signatures.
Step 3: Two Interviews
Every renunciation requires two separate interviews. The first one checks whether you understand the consequences and that you are doing this voluntarily. Then there is a cooling off period. Some embassies let you come back the same afternoon. Others make you wait a few days.
Henderson describes his first interview as surprisingly dignified. He was taken to a private office, not a public window. The official walked him through everything he would lose. They asked his reasons. He answered honestly: he no longer felt American. When they asked if it was about taxes, he clarified that he was fully compliant and his issues were with the paperwork burden and regulations, not actual tax debts.
The second interview is the final step. You raise your right hand and read the oath of renunciation. Henderson says it was emotional. Like breaking up with someone. He felt the gravity of what he was saying. But the moment it was done, he felt relief.
He walked out of the embassy, took his first breath as a non-US citizen, and says it felt like walking out of a prison yard.
What surprised me most in this section is that Henderson expected angry government officials who he could confront. Instead he found kind, professional people who respected his decision even though they could never imagine making it themselves. That is a good reminder not to project your assumptions onto situations you have not experienced yet.
The Renunciation Fee: $2,350
Before 2010, renouncing was free. Then FATCA caused a surge in renunciations and the State Department introduced a $450 fee. Four years later they raised it to $2,350. That is a 422% increase and 20 times higher than any other country in the world.
Henderson calls it “milking the cow until the very end.” He paid it anyway. His view is pragmatic. If $2,350 is what it takes to be free, just pay it. Even if they doubled the fee, people would still renounce.
But the renunciation fee is the small bill. The real cost for many people is the exit tax.
The Exit Tax Explained
The night before his second interview, Henderson sat in his living room in Tbilisi running calculations with his CFO. The US government literally taxes you until your very last moment as a citizen.
Here is how it works. Your final tax bill is calculated based on the value of your assets the day before you take the oath. It is like a death tax, except you are not dead. You are just leaving.
Not everyone pays the exit tax. You only qualify as a “covered expatriate” if you meet at least one of three tests:
Net worth of $2 million or more. This includes assets minus liabilities. If your business is worth a lot, you need to calculate its value as if you sold it that day.
Average federal tax liability above a threshold (about $171,000 per year in 2020) over the past five years. Henderson’s friend earning $1 million abroad would easily trigger this.
Unable to certify tax compliance. This catches tax evaders and accidental Americans who never filed. Fortunately, accidental Americans can back-file their returns, declare no intent to evade, and then renounce without triggering the exit tax.
If you are a covered expatriate, the exit tax is essentially a final capital gains tax on all your assets. In 2020, you could exempt the first $737,000 in capital gains. After that, long-term investments get capital gains rates and short-term ones get regular income rates.
The tricky part is that the tax applies to all assets as if you sold them. If your money is locked up in real estate or a business, you might owe a huge tax bill without having the cash to pay it. You did not actually sell anything. The IRS just pretends you did.
Henderson mentions Eduardo Saverin, the Facebook co-founder, who reportedly saved $700 million by renouncing before Facebook went public. For people at that level, the exit tax is a rounding error compared to the future savings.
Ways to Avoid the Exit Tax
Henderson notes there are strategies to avoid being a covered expatriate:
- Get into tax compliance if you have not been filing
- Gift money to family or charity to lower your net worth below $2 million
- Buy a second passport by investment (which reduces your liquid assets)
- Renounce before your business grows past the threshold
The message is clear. Plan ahead. If you wait until your assets are well above $2 million, you lose options.
Final Paperwork After Renouncing
Taking the oath is not the end of the paperwork. You still need to file:
One final dual-status tax return for the year you renounced. You are taxed as a citizen for the part of the year before renunciation and as a non-citizen for the rest.
Form 8854 where you declare all assets and make any exit tax payments.
Good news: since 2017, you no longer need to file returns for additional years after renouncing. One final return and you are done.
The Waiting Game for Your CLN
After the oath, you wait for the Certificate of Loss of Nationality. Henderson was told a couple of weeks. It took a couple of months. Some people wait five months.
During this limbo period, you are technically no longer a US citizen (the oath date counts), but you cannot prove it to anyone without the certificate. Banks will not open accounts for you. Immigration programs will not process you. They want to physically see the CLN before they believe you are really not American anymore. That is how powerful FATCA’s shadow is.
Henderson got a small perk. The Tbilisi officials let him keep his US passport for travel until the CLN arrived. Some embassies even tell people they can fly back to the US to tie up loose ends during this period. But he says do not count on this, especially at larger embassies.
His passports were eventually sent to Washington D.C. and destroyed. Henderson had asked to keep them as keepsakes. He was not prepared for the news that they were gone. Thirty-three years of stamps and memories, destroyed. He had the foresight to photograph them beforehand, which later helped him prove travel history to another government.
Life After Renouncing: The Big Questions
Do You Still Pay US Taxes?
There is a myth that you pay taxes for ten years after renouncing. That was an old law from the 1990s. It has been replaced by the exit tax system. Once you file your final return and pay any exit tax, you are done.
But renouncing does not erase the past. Existing tax debts remain. Past violations can still be prosecuted. And you can fall back into the US tax system in two ways:
- Become a US person again - spend too much time in the country and trigger tax residency
- Own US assets - real estate, stocks, bonds, or business income from US sources
One surprising detail: if you plan to keep US investments until you die, renouncing might actually cost you more. US citizens can shield up to $11.2 million from estate tax. Non-citizens? Only $60,000. That is a massive difference. If you want to truly escape the estate tax, you need to move your investments out of the US before you die.
Can You Still Use US Banks?
Yes. This surprised me. The US actually encourages non-citizens to bank there by offering tax-free interest income for non-resident aliens. You can keep existing accounts and credit cards. You maintain your Social Security number and credit score. Getting new accounts might be harder, but it is not impossible.
Meanwhile, foreign banks that refused you as an American become much more welcoming once they see your CLN. Henderson has seen banks in Switzerland and Hong Kong that were closed to Americans open their doors to former Americans.
Government Benefits
Social Security: Still yours if you worked at least 40 quarters (about 10 years) in the US. Renouncing does not take it away. Henderson’s calculated payout was $1,200 a month, which was not enough to keep him tied to the US. He also questions whether Social Security will even exist by the time his generation reaches retirement age.
Medicare: You still qualify, but you need to be physically in the US to use it. If your new passport does not get you visa-free access to the US, good luck getting there to use it.
Military pensions: Gone. If you renounce, you lose military benefits completely. Henderson warns that if you have a $50,000 yearly military pension coming, think very carefully before renouncing.
Can You Visit the US?
The Reed Amendment, passed in 1996, says renunciants can be denied entry if they left to avoid taxes. Sounds scary. In practice? From 2002 to 2015, only two people were denied entry under this law. It has been nearly impossible to enforce.
After renouncing, the US treats you like a citizen of whatever country your passport is from:
- Canadian passport: Walk right in. Up to 180 days. Almost the same access as citizens.
- Tier A passport (most of Europe, Japan, Singapore, etc.): Apply for ESTA online, pay a small fee, get approved 99% of the time. Good for 90 days per visit.
- Tier B or C passport: You need a tourist visa. Trip to the embassy, pile of paperwork, $160 fee, and you need to prove you have a home to return to.
Henderson knows someone who renounced with a Swiss passport and found it easier to enter the US with ESTA than it had been as an American. That is ironic but apparently true.
Travel Without a US Passport
This is where people panic the most. The US passport is one of the best in the world for visa-free travel. What happens when you give it up?
Henderson is honest about it. His current passport portfolio cannot get him visa-free into the “CUNA” countries - Canada, United States, New Zealand, and Australia. He also needs visas for Mexico and a few others.
But here is what he discovered. In three years, he spent a total of 11 days in all four CUNA countries combined. His fear of missing out was based on old beliefs, not reality. He found that places like Dubai and Singapore offer better luxury living than most Western cities. And they are open to people from everywhere.
For the cases where he did need a visa, like Thailand, it was not the end of the world. Go to the embassy, fill out a form, come back the next day. Americans tend to equate “need a visa” with “cannot go.” That is simply not true.
He even gained access to half a dozen countries that US passport holders cannot visit visa-free. The math can actually work in your favor depending on your passport portfolio.
Could You Renounce With Just a Tier C Passport?
Henderson says yes, potentially. If you plan to stay in one place or one region, a basic passport can work. His Comoros Islands passport (a true Tier C) gave him visa-free access to Singapore, Hong Kong, Philippines, Indonesia, India, and more. He could have based himself in Malaysia and traveled around Southeast Asia while working on better passport options.
Add an EU residence permit to a Tier C+ passport like Turkey and you get close to Tier B travel privileges. Residence permits in the Schengen area let you live and work across the EU, and some countries give you visa-free entry just for having EU residency.
Can You Get Your Citizenship Back?
Short answer: barely. The US State Department says renunciation is “irrevocable.” You have two options:
- Challenge the renunciation in court claiming you never meant to give it up. Henderson says this is “basically impossible.”
- Get in line with everyone else. Apply for a visa, get permanent residence, meet physical presence requirements, pass language and history tests, pay fees, and wait. You cannot use family connections as a shortcut. You simply start over.
And if you do make it through naturalization again, you become a naturalized citizen, not native-born. That means the government could denaturalize you if you do anything wrong.
There is no quick path back. If you renounce, mean it.
Henderson’s Freedom Moment
The chapter ends with Henderson standing on the Bosphorus in Istanbul, three days before his renunciation. Five years earlier, he stood in the same spot wishing he could be like the ships on the river, carrying a different flag, heading anywhere they wanted.
This time he knew it was about to happen. And he realized it was not about money. He just wanted to be free. Free from the mental burden of worrying about filling out a form wrong. Free from regulations that changed every year. Free to live where he wanted without someone breathing down his neck.
Three days later, he took the oath. Then he opened a bank account in Singapore, moved his money out of the US, and embraced his identity as a global citizen. He says the peace of mind was worth everything.
While watching the world’s governments restrict more and more freedoms during 2020, Henderson felt relief that he had already left the system. More rules, more regulations, fewer options for everyone still inside. But not for him.
His final message: if you have decided renunciation is right for you, the time to act is now. These strategies - foreign bank accounts, second passports, offshore companies - are getting harder to access every year. Get your plan in place and execute it before the window closes further.
Key Takeaway
Renouncing US citizenship is a structured legal process with real financial costs - a $2,350 fee and potentially a significant exit tax on all your assets. The process requires two interviews at a foreign embassy, final tax returns, and months of waiting for your Certificate of Loss of Nationality. But life after renouncing is not the disaster many fear. You keep Social Security, you keep US bank accounts, most countries still let you in with proper visas, and foreign banks that rejected you as an American will welcome you with open arms. The biggest risk is not planning properly before you jump. Henderson’s lesson from this entire chapter is simple: have your passports, your residence, your tax strategy, and your lifestyle figured out before you renounce. The nuclear option only works when you have already built a life on the other side.
Book: Nomad Capitalist by Andrew Henderson | ISBN: 9798461831486
Previous: Chapter 5 Part 1 - Renouncing US Citizenship Next: Chapter 6 - Love and Family on the Road
Part of the Nomad Capitalist series