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Why did Facebook co-founder Eduardo Saverin renounce his U.S. citizenship?
The answer to this question was the subject of much speculation on Friday, when news broke that the Brazilian-born tech investor renounced his U.S. citizenship back in September. It was only on April 30, when the IRS published a list of citizens who have chosen to expatriate, that the information became public.
Many believe Saverin is trying to avoid an astronomical tax bill in the wake of Facebook's IPO. His shares are worth as much as $3.84 billion.
But Saverin's spokeswoman says this is not the case, reports Forbes. He currently lives in Singapore and plans to remain there for quite some time. Eduardo Saverin renounced his citizenship because it was more practical to do so.
It probably doesn't hurt that Singapore has no capital gains tax.
Preparing for Facebook's IPO or not, renouncing his citizenship pre-IPO was a wise move, according to Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan. When U.S. citizens expatriate, they still pay capital gains taxes on their stock holdings, he told Forbes. The IRS treats stock as if it has been sold.
The amount paid is based on an appraisal by tax advisors. When the company is private, Avi-Yonah explains, ex-citizens can argue that the stock is worth less because of the difficulty of selling private shares. But once the company has gone public, it's much more difficult to argue about value.
The fact that Eduardo Saverin renounced his citizenship pre-IPO may have saved him millions of dollars. That's pretty useful for someone who continues to invest in technology startups.