Citizenship-based taxation means a country taxes its citizens on their income no matter where in the world they live. Almost every country does the opposite: it taxes people because they are resident there, and stops once they move away and cut their ties.
The United States is the only major economy that taxes its citizens this way, and Eritrea is the other country most often named. Myanmar added a levy on its overseas workers in 2023. A wider group of countries, including Spain, Italy, Mexico, Finland and Sweden, use nationality as one trigger in rules that keep a person tax resident for some years after a move. This guide explains each category and what it means for people who live abroad.
Key takeaways
- The US taxes citizens and green card holders on worldwide income wherever they live, and the only full exit is to give up citizenship or long-term residence.
- Eritrea collects a 2% levy from its diaspora, and Myanmar has charged overseas workers since October 2023. Both tie payment to consular services.
- Several European and Latin American countries do not tax all citizens abroad, but their nationals can stay resident for years after moving to a low-tax or listed jurisdiction.
- Germany and the Netherlands keep inheritance and gift tax reach over nationals for 5 and 10 years after emigration.
- A second passport does not by itself change any of these rules.
Residence-based vs citizenship-based taxation
Under residence-based taxation, the link that matters is where you live. Tests vary, but most look at days present, a permanent home and where your personal and economic life is centered. Once you leave and the tests no longer apply, your old country generally taxes only income that arises there, such as local rent. Our guide to how tax authorities decide where you live covers those tests in detail.
Under citizenship-based taxation, the link is the passport. Moving abroad changes nothing about the duty to file and pay. Relief comes through exclusions and credits rather than through leaving.
Between these two models sits a third group: countries that tax on residence but use nationality to decide when residence ends. For a citizen, leaving is harder than for a foreigner with the same facts. That is not true citizenship-based taxation, but it has a similar effect for the years it applies.
The United States: the main example
The IRS states that US citizens, including those born abroad to an American parent, are subject to US income tax on their worldwide income wherever they live, as set out on its page for citizens by birth or through a US parent. The same applies to green card holders. The Supreme Court upheld the principle in Cook v. Tait in 1924.
In practice, many Americans abroad owe little or no US income tax, but they must still file. The main tools are:
- Foreign Earned Income Exclusion (FEIE): up to $132,900 of foreign earned income for tax year 2026.
- Foreign Tax Credit: a credit for income tax paid to another country, which often matters more for people in high-tax countries.
- Treaties: limited help, because most US treaties contain a saving clause that keeps the US right to tax its own citizens.
Filing also comes with reporting. Foreign accounts above $10,000 in total trigger an FBAR, and larger balances can trigger Form 8938 under FATCA. Our guides to FEIE vs the foreign tax credit and FBAR and FATCA explain both.
The only way to end US tax citizenship is to give up the citizenship itself. Wealthier people who do so can face an exit tax under section 877A. We cover the steps and costs in renouncing US citizenship.
People who are American by accident
Many people hold US citizenship only because they were born in the US or to an American parent, and have never lived there. They are often called "accidental Americans." They have the same filing duties as any other citizen. The IRS offers relief procedures for some former citizens with low tax liability and modest wealth, which helps people who renounce without a history of US filings.
Eritrea and Myanmar: diaspora levies
Eritrea asks citizens abroad to pay a 2% tax on their income. Reporting by the New Statesman in 2013 described how passport renewals, permits and transfers to relatives were refused without proof of payment. In 2011 the UN Security Council, in Resolution 2023, condemned the way the tax was collected and called on Eritrea to stop using threats and other illicit means to raise it. Canada and the Netherlands have both expelled Eritrean diplomats over the way it was collected.
Myanmar's Union Taxation Law of 2023 took effect on October 1, 2023, and ended an exemption that had protected overseas workers since 2012. Radio Free Asia reported that embassies set the levy at 2% of earnings and that a payment certificate became necessary to renew a passport or get some official documents.
Both are diaspora levies collected through consulates rather than full income tax systems with returns and credits. Their force comes from control over documents, not from tax audits abroad.
Countries where nationality extends tax residence
The rules below do not tax every citizen abroad. They make it harder for nationals to stop being resident, usually when the move is to a low-tax or listed jurisdiction. Foreigners leaving the same country often face lighter rules.
| Country | Rule linked to nationality | How long it lasts |
|---|---|---|
| Spain | Nationals who move to a listed tax haven stay taxpayers | Year of the move plus four more years |
| Italy | Citizens who move to a tax haven are deemed resident unless they prove otherwise | No fixed end date |
| Mexico | Citizens who move to a country Mexico treats as a tax haven stay resident, unless an information exchange agreement applies | Year of the notice plus five more years |
| Finland | Nationals stay resident unless they prove they have no essential ties | Three full years after leaving |
| Sweden | Citizens and people resident for 10 years are resident until they prove ties are broken | Burden shifts to the tax agency after five years |
| Germany | Nationals stay in scope for inheritance and gift tax | Five years abroad |
| Netherlands | Nationals stay in scope for inheritance and gift tax | Ten years after leaving |
| Hungary | Citizenship is listed among the criteria for tax residence | Depends on facts and treaties |
The Finnish rule comes from the PwC summary of Finnish residence rules, and the German inheritance rule from section 2 of the Inheritance Tax Act. Most of these rules can be displaced by a tax treaty. When two countries both claim a person, the treaty's tie-breaker tests usually decide who wins, as our guide to tie-breaker rules explains.
France and Monaco are a special case. Monaco has no personal income tax for its residents, except French nationals, who remain taxable in France under a bilateral arrangement dating from the 1960s.
The Philippines shows that countries can also move the other way. It once taxed citizens abroad on foreign income, but non-resident citizens are now taxed only on income from Philippine sources.
What this means for people with more than one passport
A common belief is that a second citizenship changes your tax position. Usually it does not. Tax follows residence in most countries and citizenship in the US. Getting a new passport does not end US tax duties, and it does not make you resident in the new country.
For citizens of countries with extended-residence rules, the destination matters. A Spanish national who moves to a country on Spain's list faces four more years as a Spanish taxpayer. The same person moving to a treaty partner with normal tax rates generally does not. The details depend on each list and each treaty, and lists change.
Exit taxes are a separate issue. They charge unrealized gains when residence ends rather than extending residence. Our list of countries with exit taxes covers them.
Could the US switch to residence-based taxation?
Proposals to move the US to residence-based taxation come up regularly. A bill introduced in the House in December 2024, H.R. 10468, would have let qualifying Americans abroad elect a residence-based system. It expired when that Congress ended. As of October 2026, no such bill has become law, and Americans abroad remain subject to the full filing system. Any future bill is a proposal until it passes both chambers and is signed.
Frequently asked questions
Which countries tax their citizens living abroad?
The United States is the main country that taxes citizens on worldwide income regardless of residence. Eritrea collects a 2% diaspora levy, and Myanmar has charged overseas workers since 2023. Other countries, such as Spain, Italy and Mexico, use nationality only to extend residence after certain moves.
Does getting a second passport stop US taxation?
No. A US citizen who gains another nationality is still a US citizen for tax purposes. Only a formal loss of US citizenship, confirmed by the State Department, ends the filing duty from that date.
Do I have to pay US tax if I live abroad?
US citizens abroad must file if their income is above the filing threshold. Many owe little or nothing after the foreign earned income exclusion or foreign tax credits, but the outcome depends on income type, the tax paid locally and other facts.
Is the UK a citizenship-based tax country?
No. The UK taxes on residence under its statutory residence test. A British citizen who becomes non-resident is generally taxed only on UK-source income, although some anti-avoidance rules reach people who return within a few years.
Can a tax treaty override citizenship-based rules?
Treaties can settle dual residence between two countries. The US is different: most US treaties keep the right to tax US citizens as if the treaty did not exist, with some exceptions.
Important: This article is general information, not tax, legal or financial advice. Rules change often and depend on your personal circumstances. Speak with a qualified professional in each relevant country before you act.