http://www.bangkokpost.com/news/investigation/420249/us-citizens-take-note-fatca-has-landed
US citizens take note: Fatca has landed
Published: 13/07/2014 at 06:04 AM
Newspaper section: Spectrum
After years of talk, the Foreign Account Tax Compliance Act (Fatca) is
finally in effect. How will it affect you if you are a US citizen?
These tougher new US rules to enforce tax compliance worldwide took
effect on July 1. Fatca obliges institutions worldwide to comply and
report information to the Internal Revenue Service about accounts and
investments held by any US citizen or green card holder. The change
has been on the horizon for some time -- see Net Worth, March 23, 2014,
"Is Fatca just for fat cats?"
There has been a flurry of correspondence this month from financial
institutions advising that new forms now have to be completed for any
new account or investment opened by any expat whether they are US
citizens or not. The information required includes details of where
the expat is resident for taxation purposes as well as his or her home
country and passport nationality. The introduction of these new forms
is a clear demonstration that these institutions are complying with
Fatca.
The US and Eritrea are the only two countries in the world that impose
taxes on their citizens no matter where they live. As an expat from
any other country you will be taxed on income earned in your home
country while you are living there. When you are living elsewhere, as
an expat, you will not be taxed back home on income earned outside
your home nation. Income generated in that country will usually be
taxed locally, whether you are living there or not. But you are not
taxed purely on the basis that you are a citizen unless you are from
Eritrea or you are a US citizen.
The Fatca regulations were buried in the "Hiring Incentives to Restore
Employment Act", which President Barack Obama signed into law in 2010.
The impetus to toughen tax compliance stemmed from admissions by Swiss
banks in 2009 that they had assisted US citizens in hiding their cash
in overseas accounts, far from the eyes of the IRS, thus evading US
tax. UBS was heavily exposed, eventually paying a fine of some $780
million and handing over the names of more than 4,400 account holders
to the IRS.
Many countries strongly objected to these regulations and put up a lot
of resistance when the IRS began to discuss enforcing Fatca globally.
However, every country has now caved in after venting their
displeasure.
Some countries have even warmed to the spirit of the Fatca idea and
decided to implement similar rules themselves. Some of these ideas
came from objectors who turned the requests from the IRS back on the
agency and insisted that Washington reciprocate by helping them catch
their tax dodgers.
Many expats who are aware of these regulations seem to either shy away
from wishing to know more or simply shrug because they believe they
have nothing to fear. If you are a US expat and are complying with the
IRS tax regulations, it is quite true that you have nothing to fear.
Some doomsday soothsayers report that there is a mass exodus of
citizens from the US. This apparent stampede for the door of US
nationals relinquishing their citizenship is actually a little
far-fetched. The reality is that there has been no significant change
in such numbers (see Net Worth, July 19, 2003: "Renouncing your US
citizenship for tax advantages").
Others objections stem from the fact that privacy laws in foreign
countries will be violated by divulging such information. It is
certainly true that US privacy laws would be violated if such personal
information were revealed from within the US to an outside enterprise.
The Fatca system has been designed, in most cases, in such a way that
individual institutions report to their own governments, rather than
to the IRS. It is the governments that then report to the IRS where
appropriate.
As with so many facets of expat life, if you are complying with the
rules laid down, in this case by the IRS in the US, there is actually
nothing for you to fear. Regulations were introduced because the US
government believed many citizens, both resident inside and outside
the US, were evading taxes through offshore structures and individual
accounts.
Since the 2008 crash many countries have suffered losses of tax
revenue and have been looking for innovative ways to claw back more
money. Stopping the current spillage is an obvious way to start.
When you look at the cost of the Fatca initiative, it could be years
before the incremental amount of additional taxes collected exceeds
the huge expenditure in setting up the new rules. This is without
taking account of the costs incurred by all the other countries
involved. Both governments and private businesses have suffered a
great deal in costs just to satisfy Uncle Sam.
One further disadvantage that is emerging is that many advisers and
institutes alike have taken a decision not to deal with US expats at
all. For those US citizens who have accounts or investments, some
institutions are essentially saying they don't want them to keep their
accounts open. Is this the end of the freedom for US expats to choose
offshore tax havens as places to invest?
While the IRS is becoming more vigilant, there are ways for US expats
to use the existing rules to their own advantage. Such facilities have
been around for some time. Assets may be managed while complying with
regulations and tax affairs still kept legal. There are ways to
structure your assets and make them totally Fatca compliant, while
mitigating tax liabilities through totally legal means. This means
change and seeking advice from a professional adviser.
Many advisers apparently are refusing to deal with US expats on the
basis that the tax regulations tend to make them complex. There are
still some who are perfectly willing to accept US clients and assist
them with their overall affairs including taxation.
Fatca may be seen as a measure that will tighten the grip of the IRS
on the US expat. However, the IRS is simply implementing regulations
to ensure compliance with its tax laws. By embracing the situation,
could you not do the same to your advantage?
Andrew Wood has been an expat in Asia for 34 years and is executive
director with PFS International. He has been writing Net Worth
articles for six years and has made a significant contribution to the
PFS library of financial service articles dating back over nine years.
These articles, which cover the complete A-Z of financial planning,
are available to readers on request. Questions to the author can be
directed to PFS International on 02-653-1971 or emailed to
enquiriesthailand_at_fsplatinum.com.
Received on Tue Jul 15 2014 - 10:28:02 EDT