Living or moving overseas is not as simple for Americans as expats from other countries due to the US tax system.
Most expats will assume that they are subject to tax laws in the country where they live, but for those from the US the rules are different.
The US and Somalia are the only countries which demand their citizens living abroad also pay taxes in their home nation.
The rules apply even if US citizens have no bank account or financial assets in America.
Many may be forgiven for overlooking to tell the Internal Revenue Service (IRS) about their financial affairs – but this is all about to change with the Foreign Account tax Compliance Act (FATCA).
The US tax law phases into force from January 2014.
How FATCA works
FATCA requires all foreign financial institutions (FFI) – like banks, investment funds and insurance companies – to identify their US clients and to report details of any income earned or capital gains each year.
Not all Americans will be caught by the law as FATCA has two qualifying thresholds –
- FFIs must report details of any aggregate holdings across all accounts that total more than $50,000 at the end of the year
- If the total transactions have reached $75,000 or more in the year but the account aggregate stands at less than $50,000 at the end of the year
FATCA is a cross-reference mechanism. US citizens must report the same financial details when filing their annual tax returns, which the IRS will then cross-check with any FFI report about their finances.
The rules also apply to expats who are tax resident in the US – so, for example, British green card holders in the States with bank accounts or assets in the UK also have to tell the IRS about their finances.
To make the formal declaration, a Form 8938 must be filed with any US tax return.
FATCA penalties
To enforce FATCA, individual taxpayers could face penalties for non-declaration as part of an IRS investigation into their tax affairs.
FFIs will also be punished for holding back data. FATCA requires US financial institutions to withhold a 30% tax on any FFI’s US business if they fall foul of FATCA. Continuing offenders could see their US businesses frozen or a ban on US financial institutions dealing with them.
This effectively locks them out of the US money markets and financial system as most international dollar transactions pass through an American financial institution at some stage.
FATCA information reporting is automatic. More than 50 countries have agreed or already signed FATCA treaties with the US and the US Treasury is registering financial institutions who will give information direct to the IRS.
The message for anyone tax resident in the US is to make arrangements now to comply with FATCA or face stringent financial consequences.
Get your facts straight – the IRS is struggling to implement FATCA. Only 6 IGAs (Inter Governmental Agreements) have been signed as of today.
The rest of the world is not over the moon about FATCA. Canada hasn’t agreed anything as yet. Of course the Swiss referendum, and other lawsuits are coming up.
FATCA is very much work in progress and not a done deal.
Serious questions have been raised in our Canadian Parliament too! In depth lengthy questions. FATCA is causing a huge back lash here and it’s not even implemented yet. Once it is it’ll be a good thing to point to when American visitors come here and yet again ask me “But, why don’t they like Americans” I’ll just point to FATCA and all the bullying of Canada that went along with it.
Not bad, but I like the way Beth Thomas explains it better.
What Lisa fails to emphasize is that you should inform the government
of the country you reside in to tell the US Treasury and Jack Lew to go
F_*UCK themselves and stop making life difficult for US expats who legally
reside in their respective countries. US citizens who reside in the states and have accts
overseas are the ones the Treasury should focus on if anyone. FATCA is a disgrace
the way it stands now and I wish and pray just one head of state would come out
and have the balls to publicly lambast this folly for all the disgusting arrogance
it selfishly forces on innocent citizens, FFIs and foreign governments.
Beth, well said!
Hear hear!
In light of the UK government stupidly signing up to a IGA, there is one possible route to follow. Launch a discrimination suit with the hopes a court will rule the IGA discriminatory against UK and EU citizens residing in the UK and effectively carve them out of the IGA.
Shouldn’t all UK and EU citizens residing in the UK be treated the same rather than be discriminated against because of their origin?
Unless tax affairs can not be ruled upon in discrimination cases, it’s seems a plausible route to pursue.
Lisa get your facts straight. You sound like a pathetic puppet with your strings attached to a tax lawyer or accountant. 50 countries have agreed ? FAR FROM IT darling.
The Treasury is struggling now to get more signed and the few that have would be the usual EU submissive dogs one would expect to lick the a_*ss of the US government.
How the UK MPs could just perform the cowardly task of just bending over on request
by the Treasury and spread their buns to get corn-holed for nothing in return is a real farce. Why doesn’t David Cameron just dress in drag for the whole US administration
and beg for a good corn-holing by all in Washington. What a no-balls yellow bellied
A_*sslicker he is on this issue. If only the UK citizens knew what a rotten deal they get
Out of this there would be many more lining up at 10 Downing to corn-hole Cameron.
Well Lisa, I urge you to strap on a set of balls yourself and urge not only US expats but
governments and FFIs the world over to bi_*tch slap
anyone that approaches them from the US Treasury.
LOL. Thanks for making me laugh for a change. I’m not usually smiling when I write about FATCA!
Helloooo, McFly! It’s Eritrea, not Somalia. Is the name “Lisa Smith” a pseudonym for fledging FATCA reporter?
Somalia, Eritrea – what’s the difference?; they both end in ‘a’.