FATCA is the latest acronym to come out of the United States’ Inland Revenue Service that has expats worried. It stands for Foreign Account Tax Compliance Act, which was born out of the Hiring Incentives to Restore Employment (HIRE) Act.
The regime was dreamt up by Obama’s government in 2008, when the looming global economic crisis meant the IRS had to find more revenue, fast.
No regime of disclosure and withholding was ever going to be popular with American citizens who have assets and income from overseas.
But FATCA extends the tentacles of the IRS so far that many of the 6,000,000 or so American expats out there have been vocal in their dissent.
What do American citizens have to do under the new regime?
United States citizens have, for a long time, been taxed on income and capital that were earned abroad. However, now the IRS wants to know more about you, and demands that Americans with foreign assets of more than $50,000 must soon declare them on an annual tax return.
American citizens with overseas assets anywhere near that mark should seek professional advice immediately. The consequence of even a so-called “unintentional” non-compliance is a hefty fine. Deliberate non-compliance will lead to even greater punishments.
What about banks?
Under the FATCA regime, foreign financial institutions (FFIs) will have significant reporting duties relating to their US customers. Bank and Building Societies fall squarely into this category, but pension funds, stockbrokers and insurance companies are also caught. In addition to names and addresses of US customers, FFIs must disclose account balances and debits and credits.
As if this was not enough, FFIs may also have to withhold tax and pay the amounts direct to the IRS, which presents an operational cost to the FFI involved both in information technology that will be required and in the time employees need to spend.
The result of this is that FATCA will make life more difficult for all involved. Some FFI may decide that they will not offer accounts and services to US citizens, which cannot be what the US government intended when they designed the regime.