The financial rigours of Foreign Account Tax Compliance Act (FATCA) are looming on the horizon for US expats in the Philippines.
For a long time, FATCA has circulated as an ugly rumour, but that rumour has become a reality since July 1.
US expats in the Philippines need to take action to ready themselves for the effects of the legislation, even though FATCA doesn’t actually require them to do anything.
That may seem strange, but the devil is in the detail.
The latest FATCA List published on June 1 highlighted 221 banks and financial institutions in the Philippines which will supply financial information about the expat customers direct to the Internal Revenue Service (IRS).
How FATCA works for expats
Not only have these financial institutions signed up to FATCA, but the Filipino tax authority is also supplying financial data about Americans resident in the country to the IRS.
The IRS will then tally that data with information on tax return filings, and if they differ, will start looking for reasons why.
FATCA applies to all American taxpayers, wherever they live in the world, so expats in the Philippines cannot afford to ignore the warning.
FATCA covers bank accounts and investments held abroad in the name of US taxpayers.
The law does not only include an agreement between the Philippines and the USA, but more than 100 other countries and almost 170,000 foreign financial institutions as well.
In simple terms, that means if a US expat in the Philippines has a bank account in somewhere like Thailand or Viet Nam that data will also go to the IRS.
US expats have an annual $200,000 threshold before their bank or other financial company sends information to the IRS.
FATCA was passed as part of the Obama-backed HIRE Act in 2010, but has taken five years to fine tune,
Some money advice firms are offering FATCA solutions to help minimise any undeclared offshore tax liability that FATCA turns up.
The outcomes depend on the degree of undeclared income, while the IRS is offering some voluntary disclosure opportunities as well.
But the best course of action is to be forewarned and forearmed to deal with the fall-out should you inadvertently fall foul of FATCA and the IRS comes looking for unpaid tax.
Speaking to a money advisor can help expats navigate the FATCA maze.