USA Self-Emplyment Tax - Mission to get rid of SE Tax

[Caraco]

Many of you American expats here might not be aware that if you are a self-employed person, even if all of your income is from NZ clients and even if you are a permanent resident of NZ, the USA will require approximately 15% more on top of your income tax due to a lack of what's known as a Totalisation Agreement.

This unfair arrangement, that is ONLY for NZ (Australia, the UK, Canada, nearly all other OECD countries all have agreements mitigating this) makes our effective tax rates 40-48% of our income.

This is unsustainable and, frankly, stupid!

I'd like to corral as many people here as I could that have this exact same issue.

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I have written to the minister of small business (Hon. Stuart Nash) and have been told my letter has been delivered to him by his staff last week. We'll see if he has anything to say.

My thinkings is that if I can't get any headway with the minister, at least we could also start a petition and probably get enough signatures through friends, colleagues, clients and other contacts.

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The letter is below:


Dear Minister,

I hope this email finds you well.

I would like to bring to your attention the condition of self-employed business owners in New Zealand who are American Citizens.
I’ve recently discovered to my dismay, that New Zealand is one of a small grouping of OECD countries that does not have an agreement to mitigate Self-Employed income tax with the United States.
Because of this, we are being taxed an extra 15% on top of our NZ income taxes – bringing our effective tax rates to a whopping 40-48%.

This is not sustainable.
Even as an individual, who has ONLY New Zealand clients and contributes SOLELY to the New Zealand economy, making up to 120k / year (in a great, hardworking year!) gets shredded in half.

What’s more, the USA SE tax goes into Social Security and Medicare – both institutions of the USA which are largely useless to us as New Zealand residents.
As a millennial business owner, I knew even when I was young that US social security would be of no benefit to me as I retired as it can barely meet its obligations in its current form.
That “retirement safety net” from the US will have nothing but holes, leaving expats in NZ without retirement funding – simply impoverished elderly stranded on NZ shores.

In a further act of audacity, the US will continue to tax former US citizens for 10 years after renunciation of citizenship.

Please consider enacting an agreement with the United States to alleviate the ridiculous and hollow tax burden that NZ focussed freelancers and sole proprietors are shouldered with.
We want our businesses to succeed – but under the current setup, even a successful business will fail.
I want to continue to grow NZ’s business arena, and myself and many others are fully committed to this country we now call home.

Thanks for you time and consideration.

[Juniper]

Good idea...I wonder if NZ ministers have the power to unilaterally make this policy change, or if they need the US to agree? It seems like the sort of thing that would be negotiated between nations, and if anything the US side probably is the one with the power here, since it's about taxing its own citizens...? Thanks for spearheading this, following with interest.

[diallta]

In a further act of audacity, the US will continue to tax former US citizens for 10 years after renunciation of citizenship.

How have you concluded this? The only thing I could find to suggest this is a condition that applied to a no-longer-valid expatriation policy that states: "Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer." which wouldn't have affected you if you stayed out of the US anyway.

It seems like if you're self-employed in NZ the right course of action is to form a corporation or other legal entity under which to operate.

[Super_BQ]

I don't believe NZ (or for that matter, any OECD nation) would have the powers to change what the US (IRS) does. Look at how powerful the IRS has been by pushing FACTA through globally. They threatened any foreign bank that operates in the US, would be penalized if they don't conform with FACTA.

Agree you're best to form your own corporation in NZ. Nevertheless, all US-expats are required to file to the IRS every year.