August 5, 2015
U.S. taxes its citizens and permanent residents on their worldwide income. In general every U.S. citizen and permanent resident must file a tax return by April 15 of each year regardless of where they live. So the thought that you are only responsible for U.S. tax filing and reporting requirements if and when you live in the U.S. is wrong. And this is now more important than ever because of Foreign Account Tax Compliance Act (FATCA).
Congress enacted FATCA in 2010 to target tax non-compliance and make banking more transparent worldwide. FATCA requires foreign financial institutions to report information about U.S. citizen and permanent resident account holders. Financial institutions not willing to participate with FATCA requirements would have to withhold a 30% tax and face exclusion from the U.S. financial markets. This is a huge burden no financial institution want to take. Therefore, every country and financial institution comply. More than 80 nations and over 77,000 financial institutions have agreed to FATCA. In a sense U.S. has put the burden on the financial institutions to come up with the information of U.S. persons, including their account numbers, balances, names, addresses, and U.S. identification numbers. Law also applies to U.S.-owned foreign entities.
Moreover, every U.S. citizen and green card holders whose aggregate value of foreign bank accounts exceed $10,000 must file a Foreign Bank Account Report (FBAR) by June 30 of each year. FBAR predates FATCA, but has become more important after the creation of FATCA. Noncompliance with FBAR may result in fines in the amount of $100,000, or 50 percent of the balance of the account at the time of the violation besides possible criminal penalty. So it is serious.
Long story short: Say goodbye to the secret bank accounts in foreign countries since that information will be provided to the U.S. by your bank. If you have not filed an FBAR report, chances are that you will get caught by your bank’s reporting requirements under FATCA.
It may not be so bad though. Reporting a bank account under FBAR does not automatically mean that you will pay taxes off of it. It is also important to remind that, U.S. has tax agreements with some countries to avoid double taxation. So even if you are filing a tax return you can use certain exemptions and end up not paying any taxes to U.S. government.
Every U.S. citizen and permanent resident residing or keeping bank accounts abroad must consult with a CPA to determine their U.S. reporting and tax liabilities before thinking about giving up their green cards or U.S. citizenship.
Remzi Guvenc Kulen, Esq.
Kulen Law Firm PC