Dual Citizenship Taxes: Avoid Double Taxation with Key Strategies

Holding two passports opens the door to greater mobility and opportunity, but it also raises an important financial question, “Does having dual citizenship mean you have to pay taxes in both countries?” The answer depends on where each citizenship lies and how each country approaches taxation.

In most parts of the world, tax obligations are based on where you country of residence (where you live) and is not based on the passport you hold. However, countries like the United States follow a system of citizenship-based taxation, which means U.S. citizens must report and pay taxes on their worldwide income regardless of where they reside. This creates unique challenges for dual citizens, especially when they live and earn abroad.

Understanding the tax implications of dual citizenship is crucial for avoiding costly mistakes. From navigating double taxation to meeting reporting requirements like FBAR and FATCA, dual citizens must take a careful, strategic approach to stay compliant. Thankfully, there are tools such as foreign tax credits, exclusions, and tax treaties that can help reduce your tax burden.

• What is dual citizenship and how does dual citizenship taxes work?
• Do dual citizens have to pay taxes in both countries?
• The Risk of Double Taxation and How to Prevent It
• Additional Tax Obligations for Dual Citizens
• Special Cases and Complex Scenarios
• Practical Strategies for Managing Dual Citizenship Taxes
• Frequently Asked Questions

What is dual citizenship and how does dual citizenship taxes work?

Before looking at taxation rules, it helps to clarify what dual citizenship is. Dual citizenship (or dual nationality) means an individual is legally recognized as a citizen of two countries. This status can arise in several ways:

• Being born in one of the countries with birthright citizenship or jus soli (“right of the soil”) laws
• Citizenship by descent (jus sanguinis) through parents or family lineage
• Citizenship by marriage to a foreign national.
• Citizenship by naturalization after a period of legal residency in the country.
• Citizenship by Investment, which grants nationality in exchange for a qualifying financial contribution.

While dual citizenship offers travel, lifestyle, and security benefits, it also comes with complex responsibilities. As highlighted in the Global Intelligence Unit’s Global RCBI Report, “a desire to hedge against risk” is a leading motivation for acquiring second citizenship but that same diversification can complicate your tax picture if both countries assert taxing rights over your worldwide income.

Dual citizenship taxation generally depends on two key frameworks: citizenship-based taxation and residency-based taxation.

• Citizenship-based taxation: The United States is the best-known example. U.S. citizens and Green Card holders must file annual IRS tax returns regardless of where they live, reporting all worldwide income — wages, dividends, business profits, rental income, and capital gains.
• Residency-based taxation: Most countries, including the U.K., Canada, Germany, and Portugal, tax individuals based on country of tax residence, not their passport. Typically, if you live in a country for more than 183 days in a tax year, you are considered a resident for tax purposes.
• Worldwide income and dual citizens: This creates situations where dual citizens may be taxed by two countries simultaneously: one under residency rules and one under citizenship rules. For instance, a U.S. dual citizen with U.K. dual citizenship living in London must file both a U.K. tax return (as a resident) and a U.S. tax return (as a citizen). Relief is available through tax treaties, foreign tax credits, and exclusions to prevent double taxation on the same income.

Do dual citizens have to pay taxes in both countries?

The most common concern for people holding two passports is whether dual citizens have to pay taxes in both countries. The answer depends on the tax systems of the nations involved.

• United States (citizenship-based taxation): U.S. citizens, including those with dual nationality, must file an annual U.S. tax return reporting their worldwide income, even if they live permanently abroad. This includes wages, dividends, rental income, and business profits. For example, a U.S./U.K. or U.S./Canadian dual citizen living overseas is still required to file with the IRS.

• United Kingdom, Canada, Germany, and Most Others (residency-based taxation): These countries generally tax based on tax residency, not citizenship. If you are considered a resident under local law (often defined as spending more than 183 days in the country in a given tax year), you will owe taxes there. A U.K. dual citizen living in London pays U.K. taxes as a resident, but may not owe tax to the other country unless income is sourced there.

• Double taxation risk: If one of your citizenship countries follows citizenship-based taxation (like the U.S.) and the other applies residency-based taxation (like the U.K. or Canada), you may find the same income taxed twice. For instance, a U.S./U.K. dual citizen working in London must pay income tax to HMRC while also reporting that income to the IRS.

The Risk of Double Taxation and How to Prevent It

The biggest challenge with dual citizenship taxes is avoiding being taxed twice on the same income. Fortunately, there are several mechanisms in place:

• Foreign Earned Income Exclusion (FEIE): U.S. dual citizens living abroad may exclude a portion of their foreign earned income from U.S. taxation. For 2025, the exclusion amount is over $126,000, available if you qualify under either the bona fide residence test or the physical presence test.

• Foreign Tax Credit (FTC): If you pay income taxes abroad, you can often claim a dollar-for-dollar credit against your U.S. tax bill. This prevents the same income from being taxed twice and allows unused credits to be carried forward to future years.

• Double Taxation Treaties (DTAs): The U.S. and many other countries have treaties that clarify taxing rights. These agreements may:

  • Reduce withholding rates on investment income
  • Provide exemptions for certain income types (like pensions or student income)
  • Apply tie-breaker rules to establish a single country of tax residency

By applying these measures correctly, most dual citizens find that while they may have to file in both countries, they do not actually pay double taxes on the same income.

Additional Tax Obligations for Dual Citizens

Beyond regular income taxes, dual citizens also face unique reporting requirements and obligations:

• Foreign Bank Account Reporting (FBAR): If the total value of your foreign financial accounts exceeds $10,000 at any time during the year, you must file an FBAR (FinCEN Form 114). This is separate from your tax return but is mandatory for all U.S. citizens abroad.
• FATCA (Foreign Account Tax Compliance Act): U.S. dual citizens must also file Form 8938 if they hold specified foreign financial assets above certain thresholds. FATCA also requires foreign banks to report accounts held by U.S. persons directly to the IRS.
• State-related tax issues: Former residents of U.S. states such as California or New York may still have obligations if they maintain ties (property ownership, voter registration, driver’s license). Properly severing state residency is key to avoiding unexpected state tax bills.
• Social security contributions: If you work abroad, you might face social security taxes in both countries. To prevent this, the U.S. has signed totalization agreements with many countries, ensuring you don’t pay into two systems at once and that your contributions count toward benefits.

Failing to meet these obligations can result in hefty penalties, in some cases thousands of dollars, so dual citizens should stay on top of both filing requirements and reporting thresholds.

Special Cases and Complex Scenarios

While most dual citizens face standard filing and reporting rules, some situations create additional layers of complexity:

• Accidental Americans: These are individuals who may not even realize they hold U.S. citizenship. For example, someone born in the U.S. to foreign parents but raised abroad. Despite never having lived or worked in the U.S., they are still subject to U.S. tax laws and reporting obligations on their worldwide income. This group often discovers their obligations only when opening foreign bank accounts affected by FATCA reporting.
• Streamlined filing compliance procedures: To help accidental Americans and others who are behind on filings, the IRS offers the Streamlined Procedures, allowing dual citizens to catch up on past U.S. tax returns and FBAR filings without facing penalties. This program has been a lifeline for many unaware of their obligations.
• Expatriation tax: Some dual citizens choose to renounce U.S. citizenship to escape the burden of citizenship-based taxation. However, renunciation can trigger an exit tax on unrealized gains if the individual meets certain net worth or income thresholds. For high-net-worth dual citizens, this can be a significant financial hit.
• Estate and inheritance taxes: Dual citizens may also face overlapping rules for inheritance and estate taxes. The U.S. taxes estates of its citizens regardless of where they live, while other countries impose estate or inheritance taxes based on residency. This can create unexpected liabilities for families unless mitigated through tax treaties or careful estate planning.

Practical Strategies for Managing Dual Citizenship Taxes

Dual citizens don’t have to navigate these rules alone. With proactive planning, it’s possible to remain compliant while minimizing your tax burden:

1. Determine your tax residency: Establish where you are legally considered a resident for tax purposes. This will guide which country has primary taxing rights over your income.
2. Leverage exclusions, credits, and treaties: Use the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit (FTC), and applicable tax treaty benefits to avoid being double taxed on the same income.
3. Maintain detailed records: Keep thorough documentation of foreign earnings, income taxes paid, and time spent abroad (for the physical presence test or bona fide residence test). Detailed records make it easier to claim credits and prove compliance if audited.
4. Understand reporting requirements: Stay up to date on FBAR and FATCA thresholds to avoid costly penalties. Reporting foreign bank accounts and financial assets is often just as important as paying the taxes themselves.
5. Plan for social security and retirement: If you’re working abroad, check whether a totalization agreement applies. This prevents you from paying into two systems and ensures your contributions count toward future benefits.
6. Work with expat tax professionals: International tax law is complex and mistakes can be costly. Many dual citizens benefit from working with expat tax services or advisors who specialize in cross-border taxation.

By following these strategies, dual citizens can reduce their tax liability, avoid penalties, and make the most of the mobility and lifestyle benefits that dual nationality provides.

How Can Global Citizen Solutions Help You?

Global Citizen Solutions is a boutique migration consultancy firm with years of experience delivering bespoke residence and citizenship by investment solutions for international families. With offices worldwide and an experienced, hands-on team, we have helped hundreds of clients worldwide acquire citizenship, residence visas, or homes while diversifying their portfolios with robust investments. 

We guide you from start to finish, taking you beyond your citizenship or residency by investment application. 

Frequently Asked Questions About Dual Citizenship Taxes

Do dual citizens pay taxes in both countries?

Dual citizens may have to file tax returns in both countries, but thanks to foreign tax credits, exclusions, and treaties, they usually don’t end up paying tax twice on the same income.

What are the tax implications of having dual citizenship?

The main issue is potential double taxation if both countries claim taxing rights. Dual citizens must understand their tax residency, use credits, and follow reporting requirements to remain compliant.

How does dual citizenship taxation work in the U.S. and U.K.?

The U.S. taxes citizens on their worldwide income regardless of where they live.

The U.K., by contrast, applies residency-based taxation.

A U.S./U.K. dual citizen living in London may need to file returns in both countries but can claim treaty benefits to avoid paying twice.

Can dual citizens avoid paying double taxes?

Yes, tools like the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), and Double Taxation Agreements (DTAs) help ensure the same income isn’t taxed by two countries.

What is the difference between tax residency and dual citizenship?

Dual citizenship refers to holding two nationalities.

Tax residency determines where you are taxed, based on where you live or have strong ties.

You may be a dual citizen but only a tax resident in one country.

Do dual citizens have to report foreign bank accounts?

Yes, if you are a U.S. dual citizen and your foreign accounts exceed $10,000, you must file an FBAR.

In addition, FATCA requires disclosure of larger foreign financial assets via Form 8938.

What happens if dual citizens fail to file taxes?

Non-compliance can lead to hefty penalties, interest charges, and even criminal liability in some cases.

The IRS also has access to foreign account data under FATCA, making it difficult to hide income.

How does FATCA impact dual citizens?

The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report accounts held by U.S. citizens. This means dual citizens abroad must disclose their assets to both their host country and the IRS.

Do dual citizens owe capital gains taxes in both countries?

Potentially. For example, a U.S. citizen living abroad may owe U.S. capital gains tax even if the asset is sold in another country.

Tax treaties and foreign tax credits can help prevent double taxation.

What is the expatriation tax for dual citizens?

If a U.S. citizen renounces their citizenship, they may face an exit tax on unrealized capital gains if they meet certain wealth or income thresholds. This is particularly relevant for high-net-worth dual citizens.

Are dual citizens required to pay social security contributions in two countries?

Not usually. The U.S. has totalization agreements with many countries to prevent dual citizens from contributing to two systems at once and to coordinate future benefits.

How can dual citizens get professional help with cross-border taxation?

Many firms specialize in expat tax services, offering guidance on filing requirements, treaty benefits, and strategies to reduce tax liability.

Professional advice is especially valuable for dual citizens juggling complex reporting rules.