The recently approved Foreign Account Tax Compliance Act (FATCA) contains a number of provisions that are intended to make it more difficult for U.S. taxpayers to use foreign accounts to shelter income from U.S. tax.
Some would say (and I would be one of them) that it makes compliance for both expatriates and Resident Aliens onerous.
These are notable changes:
- A requirement that foreign financial institutions disclose the identity of their US account holders and provide certain information on those accounts or be subject to a 30% withholding tax on any US source "withholdable payments".
- A requirement that non-financial foreign entities identify any substantial (10% or more) US owners or be subject to the same 30% withholding tax.
- The repeal of the safe harbors of the Tax Equity and Fiscal Responsibility Act (TEFRA), with limited exceptions. These safe harbors, known as the TEFRA C and TEFRA D rules, allow US issuers to issue bearer bonds in foreign markets without being subject to the US penalties and sanctions that otherwise would apply to issuances of debt instruments in bearer form.
- New income sourcing rules for substitute dividend payments and other dividend equivalent payments under notional principal contracts, known as swaps.
- New information reporting and penalty provisions for a US person's foreign financial assets.
- A new annual reporting rule for passive foreign investment companies (PFICs).
- New rules for foreign trusts.
These rules increase the cost of compliance for non-US banks if they have a US national as a customer. Many are considering not having any US customers. Many have closed accounts of US nationals. UPDATE 2017: This is why we are working with the team in Washington that are trying to get FATCA repealed.
Either way, it is becoming more difficult to be a US national around the world. Many ex pats are considering what used to be an empty threat — renouncing of their citizenship.
If you have unreported accounts and are unsure what to do, contact us. We can help. Call 888-727-8796 or email email@example.com.