US Citizens Living Abroad Are Challenged by FATCAOffshore Account Update
Posted on October 30, 2014 | Share
US citizens living abroad likely want to have bank accounts in the country where they live. This is especially true if the ex-patriot is interested in doing business in his new home country or has married a foreign spouse. Unfortunately, a law passed in 2010 to fight tax evasion is having an adverse impact on the lives of ex-patriots who simply want to be able to have normal banking and investment firm relationships where they live.
The tax rules have changed in recent years, and US citizens living abroad need to understand the implications of those changes as well as their new obligations under the law. Consulting with a Boston international tax attorney is an effective way to determine obligations established by the Internal Revenue Service (IRS) in order to avoid potential problems.
FATCA is Causing Problems for Ex-Patriots
The 2010 law that was passed was aimed at preventing foreign investment companies and banks from benefitting when they encouraged US citizens to move their money abroad to avoid taxes. The law is called the Foreign Account Tax Compliance Act (FAtCA) and it went into effect this July.
FATCA mandates that foreign banks and investment institutions that have US customers must disclosure investment accounts and bank balances exceeding a certain amount to the US government. If required disclosures are not made, the US may withhold 30 percent of income from dividends, interest and other US sources to bank customers.
Around 100,000 foreign institutions have moved forward to comply with FATCA. However, this leaves many institutions choosing not to cope with the regulatory burdens. Rather than facing their customers being penalized with a loss of income from US sources, the banks and investment firms are simply closing the accounts of US citizens or refusing to open the accounts in the first place.
This is a big problem for people who live abroad, or who have foreign spouses, and who just want to bank normally. Unfortunately, around 2/3rds of the bank accounts that have been closed due to FATCA rules had values of $10,000 or less. Around 60 percent of the closed investment accounts were valued at $50,000 or under. Other US citizens living abroad may not have had accounts closed, but instead were not allowed to open them in the first place.
This has led to ex-patriots losing business opportunities or experiencing disagreements with foreign spouses who do not want the US government intimately involved in their financial affairs. Around 1/5th of respondents to a recent survey, for example, indicated that they had either been forced to open separate accounts from a foreign spouse or had considered the possibility of doing so because of the complications caused by FATCA.
FATCA is not the only regulation that could cause problems for ex-pats either. Those who live abroad may still have to report their normal bank accounts to the IRS each year by submitting a Foreign Bank and Financial Accounts (FBAR) form. A Boston international tax attorney can help ex-patriots abroad to understand their obligations to the IRS and to ensure they fulfill the requirements to avoid potential penalties.
For a consultation, contact Kevin E. Thorn, Managing Partner, at email@example.com or (617) 692-2989