Retiring overseas as a US citizen subject to FATCA reporting

Published:  28 Aug at 6 PM
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Tagged: USA, Citizenship
Once you’ve left the USA for your selected retirement destination overseas, you’ll need to pay special attention to your tax returns.

As a would-be expat, you’ll no doubt be familiar with the dreaded IRS FATCA reporting, as well as being angry that everyday citizens have been caught up in a net originally designed to catch big-league tax avoiders who hide their ill-gotten gains offshore. The system works through dual reporting, in which overseas banks are forced to disclose the full details of and amounts held by every expat account holder. If these don’t tally with details provided by the expat account holders themselves, the IRS hits out hard.

The main problem with the scheme is that human beings make mistakes, especially when they’re older and unused to complicated tax filings. Mistakes are treated by the US taxman in the same way as is deliberate misfiling, leading to huge bills and often broken lives. One USA expat found himself caught up in the FATCA net when he simply forgot to include a foreign bank account with $3,500 in it. Massive penalties were handed out and the matter was only settled when the unfortunate American citizen sought the help of a dedicated lawyer specialising in expat taxation matters.

The advice handed out to would-be expat retirees is simple – if you’re leaving the USA as you can’t afford to stay due to taxes, the high cost of healthcare and other essentials, the last thing you need is to be pursued by the IRS waving a penalty notice. Basically, according to the experts, it’s all about disclosure, as wherever you’re living you’re still a USA citizen forced to disclose every last cent you own. No amount is too puny to attract attention, with honesty the only policy as the vast majority of developed and developing countries and their banks have agreed to comply.

If you really want to avoid getting trapped by the US taxman, it’s very difficult to find even one country online whose banks aren’t in FATCA’s net. However, those likely to be non-compliant are unlikely to be favourite destinations for a comfortable overseas retirement or suitable for a business start-up. In the real world, the only way to avoid FATCA is to renounce your US citizenship, an expensive process which removes the FATCA threat but creates its own problems as regards becoming a national of another country.
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