Eduardo Saverin, billionaire co-founder of Facebook, gave up American citizenship before an initial public offering that would value the social network at up to $96 billion, and the decision might reduce his taxes to the IRS, according to Bloomberg. Facebook plans to attract up to $11.8 billion through the IPO, the largest in history for a company in IT sector. Saverin holds a Facebook stake of about 4%, according to whoownsfacebook.com portal. If Facebook will get the maximum price per share, his stake would be worth $3.84 billion. Saverin’s holdings are not mentioned in Facebook reports.
Saverin, 30, joins a growing number of Americans who give up U.S. citizenship before a possible increase in taxes for the rich. The billionaire, born in Brazil and resident in Singapore, is one of those who helped Mark Zuckerberg to launch Facebook. “Eduardo has recently reached the conclusion that it is more practical to become resident of Singapore, where he plans to live for an indefinite period of time,” said a Saverin spokesman. Saverin’s name is on a list published by the IRS of American people that chose to give up citizenship before April 30. Saverin has taken that step “in September” last year, said the spokesman.
Apart from tax cuts for his stake in Facebook, giving up U.S. citizenship could help billionaire avoid paying taxes on capital gains, as Singapore has no such tax. Saverin will not escape all U.S. taxes, Bloomberg notes. Americans who give up citizenship owe capital gains taxes for stock portfolios, even if they not sold their stakes, said Reuven S. Avi-Yonah, director of the International Tax LLM Program at the University of Michigan Law School. In regards to the taxes, the IRS treats the stakes as they were sold.
Giving up citizenship longer before an IPO is “a very smart idea” about taxes, “said Avi-Yonah.” Once the company is listed, you can not do anything about the value”. Saverin’s profit, and therefore fees should be based on an assessment of its consultants. They could evaluate the stake in Facebook at a lower level compared with the value after listing, thus reducing the amount he must pay. Saverin was previously in conflict with Zuckerberg, a former colleague at Harvard, for the control on Facebook. Saverin sued the current head of the company and accepted a settlement agreement for a secret amount. Eduardo Saverin moved to U.S. in 1992 and became an American citizen in 1998, according to his spokesman.
Giving up citizenship is an option chosen by more and more Americans. A record number of 1,780 people gave up their U.S. passport last year, up from 235 in 2008, according to government data. The tax for high income Americans will rise next year to 39.6%, from 35% and taxes on capital gains and dividends will also increase if Congress does not block increases.
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