Dreaded FATCA finally in full implementation

Published:  21 Jul at 6 PM
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Since July 1, all foreign financial firms dealing with US expats overseas will face massive penalties for failing to annually disclose their clients’ accounts and financial affairs.

The introduction of the swingeing system of fines was the final stage of FATCA’s implementation worldwide, only delayed due to the need to update US government software as well as foreign firms’ client identification programmes. In spite of legal and political challenges against its implementation, there was never any real doubt that FATCA would become an unwelcome part of US expats’ lives.

Penalties to be imposed by the IRS on non-compliant financial firms are devastating and include a withholding tax of 30 per cent of the full value of the firm’s transactions in US dollars. Also able to be imposed is a ban in trading in the US money markets, meaning access to the world’s major global default currency would be lost.

It’s not just US citizens living overseas who are affected, as FATCA can catch out non- US citizen spouses, business partners and anyone holding a joint account with an American citizen. Account controllers likely to be affected include trusts, partnerships and a number of US companies.

At least five million expat US citizens and millions of USA tax residents are now affected in full, with all forced to file annual tax returns detailing their every income stream. Interestingly, the only other country on the planet which requires what most consider as intrusive personal details is the tiny African state of Eritrea.

All foreign financial firms dealing with American citizens overseas are forced to register with the IRS, as are over 100 international tax authorities. Overseas banks have been closing US citizens’ accounts by the thousand rather than having to comply with the draconian new law. In addition, overseas financial firms with US tax-resident clients must provide full personal client details as well as a financial statement for every account showing $50,000 or more at year end or, if the balance is less, any account with a balance of $75,000 at any time during the tax year.

It’s slightly different for US expats, with the balance amount set at $200,000 and a degree of flexibility as regards accounts held in the overseas country of residence. Account holders themselves have to duplicate exactly the information given by their financial advisors, investment houses or banks, using forms attached to their annual tax returns.

Since 2010, when Congress passed FATCA, many US expats have decided to renounce their American citizenship in protest, and banks across the world have been less willing to take on US expat clients due to fears of the risks of unintentional non-compliance. Any anomalies found when comparing the required two sets of documentation can trigger an IRS tax investigation.
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