By the late 1800s, the South Pacific island chain of Samoa faced an existential crisis.
After squabbles between German, British, and American forces over the previous decades, Germany had taken the western islands of Samoa, and asserted its unpopular control over the people.
The eastern islands, however, were controlled by the United States with a lighter touch. And these Samoans had a good relationship with US merchants involved in the island’s coconut trade.
But rival Samoan factions still fought amongst each other.
High Chief Mauga was a prominent leader on the island of Tutuila which included the Pago Pago harbor— a site that was strategically important to the US Navy.
High Chief Mauga calculated that by aligning with the United States, his island would be protected from German aggression and internal strife.
And that’s why he was among the chiefs who signed The Deed of Cession of Tutuila, on April 17, 1900.
Importantly, this agreement protected Samoan autonomy and property. And it specifically made American Samoans US “nationals”— a status later solidified by the passage of the Samoa Act of 1929.
Now, there is a bizarre legal distinction between being a US citizen and being a US “national”.
To this day, as US nationals, Samoans are issued US passports and can travel globally just like any US citizen. Samoans can also visit, live, and work within the United States. They cannot, however, vote in federal elections or hold certain public offices.
This makes American Samoans distinct among the inhabitants of other American territories such as Guam and Puerto Rico who are born US citizens.
To clarify, all US citizens are also considered nationals. But not all US nationals are US citizens. Strange, right?
Today, between 50,000 to 100,000 American Samoans globally enjoy this unique status. And I say “enjoy” because being a US national and not a US citizen comes with a huge benefit:
US nationals are NOT subject to the United States’ policy of taxing citizens on their worldwide income, no matter where in the world they live or earn money.
It’s true that other US territories can set their own tax policy for bona fide residents to follow. That is why living in Puerto Rico is such a great option for Americans to legally reduce their tax rate.
But if Puerto Rican born citizens move off the island, whether to the United States mainland or overseas, they will owe taxes to the IRS because they are still US citizens.
But this is not the case for American Samoans. As US nationals, they are not subject to worldwide taxation while living in American Samoa, or anywhere else.
Sure, if an American Samoan as a US national lives in, say, California, he or she will pay all the applicable federal and state taxes, just like any other US resident.
However, if they leave the United States, they stop being subject to IRS jurisdiction altogether. That means US nationals (who are not citizens) can have a tax-free and reporting-free life if they move to one of the many countries with no income tax, or a territorial tax.
And again, that’s a critical distinction from US citizens, who remain under Uncle Sam’s tax jurisdiction no matter where they live.
Now, I’d love to tell you that there’s an easy way you could swap your US citizenship for US nationality. So far we haven’t found one… but we’re still looking.
There is, however, a way for some people to create this benefit and set their future children up to be US nationals.
Most people won’t qualify; if you’re a US citizen and have lived in the United States for at least one continuous year at any time during your life, then even if you have children born in American Samoa, they would inherit your US citizenship.
If, however, you are one of the approximately 9 million “accidental Americans” globally who were born with US citizenship but have never actually lived in the US, then technically you could have a child in American Samoa… and that child would become a US national (NOT a citizen).
In addition, non-Americans could also make this work.
Children born in American Samoa to non-American citizens also become US nationals but not citizens.
There are still challenges…
For example, American Samoa only allows non-Americans to visit for 30 days at a time. It is possible, however, to extend this another 30-days with a local sponsor, or up to a year if you enroll in the local community college, or get a job on the island— they are somewhat desperate for certain qualified professionals.
Naturally we realize that this is a unique situation that will apply to only a handful of people.
But this is just one of many obscure legal quirks that we routinely uncover in our research that can be used to reduce taxes, expand your living options, or pursue other global opportunities.
The point is that having a broad understanding of these sorts of policies can open up doors all throughout the world.
And when you’re forming a strategy to live your life by your own design, it pays to be armed with this sort of knowledge.
This Unique Loophole Exempts 100,000 Americans from Taxes was first posted on September 13, 2023 at 5:52 pm.
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