Citizenship-based taxation: the United States, Eritrea, and the green card trap

What is actually true

• The United States and Eritrea are the only two states that tax on the basis of nationality rather than residence. Both also tax residents normally — citizenship-based taxation sits on top of, not instead of, residence-based taxation. Monaco's treatment of French nationals under the 1963 Convention is the nearest third example, though it operates through a bilateral treaty rather than domestic law.
• Eritrea's is a flat 2% 'Recovery and Rehabilitation Tax' on the diaspora, collected through embassies, and it is the subject of UN Security Council Resolution 2023 (2011), which condemned its use to destabilise the Horn of Africa and required Eritrea to cease those practices. It is enforced by pressure on family members remaining in Eritrea and by withholding consular services. Comparisons with the US system are made by Eritrean diplomats and are not apt: the rate, base, and enforcement mechanism have nothing in common.
• In practice, US citizenship-based taxation means: file a US return every year on worldwide income no matter where you live; report foreign accounts on FBAR (FinCEN 114) and FATCA Form 8938; report foreign companies (5471), partnerships (8865), trusts (3520/3520-A) and PFICs (8621), each with its own penalty regime frequently starting at USD 10,000 per form per year. The Foreign Earned Income Exclusion is USD 132,900 for 2026 and covers earned income only — it does nothing for dividends, interest, capital gains or business profits.
• Foreign tax credits mean US citizens in high-tax countries often owe little additional US tax. The burden is compliance and the mismatches: a UK ISA, a French assurance-vie, an Australian superannuation fund, a foreign mutual fund (a PFIC taxed punitively under §1291), a non-US pension, a foreign trust — all are ordinary local savings products that become expensive US tax problems. The cost is not usually the tax; it is the accountant, and the tail risk of a mismatch nobody spotted.
• The green card trap: you are a long-term resident if you were a lawful permanent resident in at least 8 of the last 15 tax years ending with the year residency ends. Hit that threshold and abandoning the green card is an expatriating act subject to §877A on exactly the same terms as a citizen renouncing — including the USD 2m net worth test that a decade of US real estate appreciation will quietly satisfy. Eight years arrives faster than anyone plans for, and partial years count as full years.
• The tie-breaker interaction is the sharp edge of the green card trap and it cuts both ways. Claiming to be a resident of another country under a treaty tie-breaker AFTER becoming a long-term resident is itself an act of expatriation triggering §877A. The same election made BEFORE the 8-year threshold prevents that year counting toward long-term resident status — a year in which you are treated as a foreign resident under a treaty, and do not waive treaty benefits, does not count toward the 8. The election is a tool before year eight and a trap after it.
• Renouncing is not a clean exit. Beyond §877A itself, §2801 imposes 40% on US recipients of gifts and bequests from a covered expatriate, indefinitely, payable by the recipient on Form 708 (final regulations effective 14 January 2025, applying to receipts on or after 1 January 2025). The renunciation fee is USD 2,350, appointments are scarce, and the process is irreversible. See exit-taxes for the mechanics.

Jurisdiction by jurisdiction

United States high

Worldwide taxation of citizens and residents regardless of where they live. FEIE USD 132,900 for 2026 (earned income only). FBAR, 8938, 5471, 8865, 3520/3520-A, 8621 reporting with penalties commonly starting at USD 10,000 per form per year. PFIC rules make ordinary foreign mutual funds and ETFs punitively taxed. Renunciation fee USD 2,350; §877A exit tax and perpetual §2801 exposure follow.

United States — green card holders high

Long-term resident at 8 of the last 15 tax years as a lawful permanent resident. At that point abandoning the green card (Form I-407) triggers §877A on the same terms as a citizen's renunciation, including the unindexed USD 2m net worth test. A treaty tie-breaker claim before year 8 stops that year counting; the same claim after year 8 is itself an expatriating act. Partial years count as full years.

Eritrea low

Flat 2% 'Recovery and Rehabilitation Tax' on diaspora income, collected via embassies and enforced through consular service denial and pressure on relatives in Eritrea. Condemned in UN Security Council Resolution 2023 (2011). Legally unenforceable in most host states and the subject of ongoing criminal investigation in several European jurisdictions. Practically relevant to almost no UHNW family, but it is the only other example of the model.

Monaco — French nationals medium

Not citizenship-based taxation in the US sense, but functionally similar via treaty: under the Franco-Monegasque Convention of 18 May 1963, French nationals resident in Monaco since after 13 October 1957 pay French income tax on worldwide income as though resident in France. Tax liability assigned by nationality, through a bilateral instrument rather than domestic law.