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 countries that tax on the basis of nationality rather than residence. Both also tax residents in the ordinary way. Citizenship-based taxation sits on top of residence-based taxation, not instead of it. Monaco's treatment of French nationals under the 1963 Convention comes closest to a third example, though it works through a bilateral treaty rather than domestic law.
• Eritrea's version is a flat 2% Recovery and Rehabilitation Tax on its diaspora, collected through embassies. 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 stop the practice. Eritrea enforces the tax by pressuring family members who remain in the country and by withholding consular services. Eritrean diplomats have compared this system to the American one. That comparison does not hold. The rate, the base, and the enforcement mechanism have nothing in common.
• In practice, US citizenship-based taxation works like this. You file a US return every year on your worldwide income, no matter where you live. You report foreign accounts on FBAR (FinCEN 114) and FATCA Form 8938. You report foreign companies (5471), partnerships (8865), trusts (3520/3520-A) and PFICs (8621), and each of these forms carries its own penalty regime, often starting at USD 10,000 per form per year. The Foreign Earned Income Exclusion is USD 132,900 for 2026, and it 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 real burden is compliance, and the mismatches it creates. 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. These are all ordinary local savings products. Each becomes an expensive US tax problem once it crosses into American tax law. The cost is usually not the tax. It is the accountant, and the tail risk of a mismatch nobody spotted.
• The green card trap: you count as 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 your residency ends. Cross that threshold, and giving up the green card becomes an expatriating act. It falls under §877A on exactly the same terms as a citizen renouncing, including the USD 2m net worth test. A decade of US real estate appreciation can quietly satisfy that test on its own. 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. That triggers §877A. The same election made before the 8-year threshold works differently. It prevents that year from 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, simply does not count toward the 8. So 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

The US taxes citizens and residents on worldwide income, no matter where they live. The FEIE stands at USD 132,900 for 2026, and it covers earned income only. Then there is the reporting: FBAR, 8938, 5471, 8865, 3520/3520-A, and 8621, with penalties commonly starting at USD 10,000 per form per year. PFIC rules make ordinary foreign mutual funds and ETFs punitively taxed. And if you renounce, the fee is USD 2,350. The §877A exit tax and perpetual §2801 exposure follow from there.

United States — green card holders high

You become a long-term resident once you have held a green card for 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 made before year 8 stops that year from counting. The same claim made after year 8 is itself an expatriating act. Partial years count as full years.

Eritrea low

Eritrea's diaspora tax is a flat 2% levy known as the Recovery and Rehabilitation Tax. It is collected through embassies and enforced by withholding consular services and pressuring relatives still living in Eritrea. The United Nations Security Council condemned the practice in Resolution 2023 (2011). Most host states treat it as legally unenforceable, and several European jurisdictions have opened criminal investigations into how it operates. In practice it means little to almost any UHNW family, but it remains the only other real-world example of this citizenship-based tax model.

Monaco — French nationals medium

This is not citizenship-based taxation in the American sense, but it works much the same way through a treaty. Under the Franco-Monegasque Convention of 18 May 1963, French nationals who have lived in Monaco since after 13 October 1957 pay French income tax on their worldwide income, just as if they still lived in France. The tax liability is tied to nationality, but it comes from a bilateral treaty rather than domestic law.