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.
FATCA solutions
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.
America’s tax and compliance laws increasingly act to keep Americans in by punishing harshly those who have left. Those impacted very much are part of the 99% low and middle class persons and include a mentally disabled Canadian who never lived in the US (and can’t renounce US citizenship under US law because he is mentally disabled). The US punishes this person via taxation of their taxed deferred Canadian disability account his family setup for his care – and even tax Canadian government matching contributions into this account. There are many “accidental Americans” overseas who may have lived in the US for a short time or got their US citizenship because one or both parents were Americans. Others may have moved overseas after school, as part of work, or after US military service. America is out to hunt all these persons down with its FATCA law, forced on the countries of the world by blackmail (and by some estimates a $200 billion compliance cost to return the IRS an estimated $8.7 million over 10 years), to make local law the ferreting out of Americans and their financial account details and sending it all to the IRS.
If you are a US person living overseas, and there are 7.6+ million, then you are already getting taxed in the country where you live and receive government services. You receive $0 in US government services as you are ineligible because you don’t live in the US. The US with Citizenship Based Taxation wants to tax you as if you live in the US. The US allows tax credits for taxes paid in your country of residence and the US has an earned income exclusion yet many counties such as Australia, Canada, and the UK have much higher tax rates cutting in much earlier – so generally there is no US tax on earned income, or interest income. The conundrum comes in where the US has taxes that your country does not, then this flows on top of all taxes paid as double taxation (recently there has been the publicised IRS pursuit of Mayor of London Boris Johnson – lived in the US his first 5 years- for sale of his home in the UK as the UK does not tax the sale of ones first home).
Additionally the US does not recognise the legal retirement accounts in other countries and wants to tax them punitively on annual account gain at US marginal rates, in disregard of any taxes already paid on that money, and in disregard of the retirement account policies of other countries. Living overseas the US wants to charge the Obamacare NIIT tax and as no other countries have an Obamacare NIIT Tax, there is no tax treaty protection and it just flows on top as double taxation. Thus the US interferes into the internal affairs and policies of the countries of the world.
US persons living overseas are tremendously disadvantaged by US tax and compliance policies, as suggested by this article. All other countries of the OECD practice Residence Based Taxation. As a result while US persons overseas are tripped up by double taxation, reporting all their accounts (also reporting employer or business partnership accounts to which they have signature authority), and onerous compliance and penalties; nationals from all other countries are at a much better advantage.
Any US persons living overseas caught up in all this must visit the message boards of The Isaac Brock Society whose motto is: Liberty and Justice for all United States Persons Abroad [because the US no longer stands for Liberty and Justice for Americans who do not live in the US]. ADCS has initiated legal action and is seeking donations in its fight against US government injustices against US persons overseas – check it out on The Isaac Brock Website.