Americans are pretty much the only people taxed even if they leave their country. Still think you are free? HA!
With huge deficits, governments the world over are looking at ways to generate more revenue. No doubt that they are leaving no stone unturned. For Americans living or retired abroad (which is a growing trend), this means preparing for FATCA.
What is FATCA you may ask? According to Americansabroad.org, “The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting in 2014 foreign financial institutions (FFI) will be required by the U.S. government, under FATCA, to report information regarding accounts of U.S. citizens, U.S. persons, Green Card holders and individuals holding certain U.S. investments to the IRS. This law requires foreign financial institutions such as your local bank, stockbrokers, hedge funds, insurance companies, trusts, etc. — to report directly to the IRS all their clients who are “U.S. persons.” FFIs that don’t become compliant will be subject to a 30% withholding on these investments, which will directly impact FFI clients.”
As if this isn’t bad enough, you have the FBAR (Foreign bank and foreign account reporting). In my Jerusalem Post interview with Felecia Seaton, an expert in on U.S. income tax compliance and U.S. estate planning law for those residing abroad, she defined FBAR this way:
“This obligation affects U.S. persons who have ‘any interest’ in an account located outside of the U.S. ‘Any interest’ can include an agent under a power of attorney and a person who has signatory authority, so check with a tax professional to determine whether you are required to file and what you are legally obligated to include on your FBAR. If these non-U.S. accounts had a cumulative balance on any given one day of the year of more than $10,000, filing is mandatory.”
What is happening is that the IRS is basically using foreign banks to do their dirty work.
The foreign bank now has responsibility to locate all of their clients who are U.S. persons and sign them on a W-9 form. If they don’t the customer will be withheld taxes at source. The aim of this policy is noble. Seven million U.S. “persons” (humans, trusts, companies, estates) reside outside of the U.S. Only about 500,000 of them file tax returns annually. After all, there is no reason that U.S. persons anywhere should dodge their responsibility in paying their fair share.
The problem is that many Americans are in no man’s land with their foreign banking. For retirees living abroad this can be a very difficult situation. Many foreign banks have decided that it’s too costly to be compliant with the U.S. so they are purging their customer rolls of U.S. persons. This means that you can be an honest, compliant retiree living in Tel Aviv or London, diligently file all your forms with the IRS but get thrown out of your local bank because they won’t want to do business with you. It isn’t just the U.S., after speaking to friends of various nationalities it appears that many countries are now starting to demand the same reporting levels as the IRS.