May 11, 2012 at 1:09 PM ET
Eduardo Saverin, one of four co-founders of Facebook, has renounced his U.S. citizenship.
The move may reduce his tax bill following the initial public offering that values the social-network powerhouse at as much as $96 billion, according to Bloomberg.
Facebook expects to raise as much as $11.8 billion through the IPO. Saverin’s stake in the company is about 2 percent, according to The Wall Street Journal. His holdings are not listed in Facebook’s regulatory filings.
Saverin, a Brazilian-born resident of Singapore, helped Mark Zuckerberg start Facebook while at Harvard University. Saverin was pushed out early on, with his stake in the company diluted from 34 percent to less than 10 percent, according to The Wall Street Journal. After selling some shares and more dilution, that stake has thinned more. Even so, he stands to profit handsomely from the IPO.
“The Social Network,” a 2010 film about Facebook, portrayed Saverin as a scorned friend of Zuckerberg’s and an unsophisticated entrepreneur.
Saverin and Facebook have traded lawsuits over his stake in Facebook, which were eventually settled with Saverin getting a 5 percent stake and a co-founder bio on the Facebook’s site, according to Forbes.
“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an emailed statement to Bloomberg. Saverin’s name is on a list of those who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin renounced his U.S. citizenship “around September” of last year, according to his spokesman.
Singapore does not have a capital gains tax.
Renouncing one’s U.S. citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school, told Bloomberg. “Once it’s public you can’t fool around with the value.”
Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, Avi-Yonah said. For tax purposes, the IRS treats the stock as if it has been sold.
“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” Richard Weisman, an attorney at Baker & McKenzie in Hong Kong, told Bloomberg. “The tax cost, complexity and the traps for the unwary are among the considerations.”
Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman told Bloomberg.
Forbes estimated Saverin’s net worth at $2 billion, ranking the 30-year-old No. 634 in its list of billionaires.
Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB.