US Citizens Take Note: FATCA Has Landed

The implementation of the Foreign Account Tax Compliance Act (FATCA) is now upon us and so how will this affect you if you are an American citizen?

Effective 1 July 2014, FATCA rules have been implemented. Financial institutions worldwide are now obliged to report information to the USA Internal Revenue Service (IRS) about financial accounts and investments held by any US citizen or green card holder. This matter has been on the horizon for some time and was first raised in Net Worth, “Is FATCA Just For Fat Cats? US Expats Beware” on 24 March 2014.

At the beginning of July there was a flurry of correspondence from a significant number of financial institutions advising that new forms now have to be completed for any new account or investment opened by any expat, whether American or not. The information required includes details of where the expat is resident for taxation as well as home country and passport nationality. The introduction of these new forms is a clear demonstration that the institutions are complying with FATCA.

The USA is the only major country which imposes taxes on worldwide income of its citizens, no matter where they live. Citizens from any other country will be taxed on their worldwide income only whilst living at home. When you are living elsewhere, as an expat, you will not be taxed back home on your income earned outside your home nation. Income generated inside your home country will usually be taxed, whether you are living there or not.

President Obama signed the FATCA regulations into law as part of the “Hiring Incentives to Restore Employment Act” of 2010. This initiated with Swiss banks, who in 2009 owned up to having assisted US citizens in hiding their cash in overseas accounts well out of the prying eyes of the IRS and evading US tax.

Many nations strongly objected to these new regulations, but after some initial heavy opposition almost every country and financial institution has agreed to implement the guidelines, not least due to the threat of heavy penalties for non-compliant institutions.

Some countries decided to implement similar themes themselves, turning the requests from the IRS back on them and insisting that they reciprocate. This created duplication but also cooperation amongst a number of other countries.

Some doomsday soothsayers report that there is a mass exodus of citizens from the US. This apparent stampede for the door is actually a little far-fetched. The reality is that there has been no significant change in such numbers. See Net Worth “Renouncing Your US Citizenship For Tax Advantages” of 29 July 2013.

Other objections stem from the fact that privacy laws in foreign countries will be violated by divulging such information. It is certainly true that US privacy laws would be violated if the table was turned on them. The system has been designed, in most cases, such that individual institutions report to their own governments, rather than to the IRS. It is the governments which then report to the IRS where appropriate.

As with so many facets of expat life, if you are complying with the rules laid down, there is actually nothing for you to fear. Regulations were introduced because the US government believes there are US citizens who are evading taxes through offshore structures and individual accounts. Since the 2008 crash many countries around the world have suffered losses of tax revenue. This has resulted in the implementation of innovative ways of increasing tax revenues. Stopping current spillage is an obvious way to commence this exercise.

When you look at the cost of the implementation of FATCA it is not clear whether there will actually be any gains made for some time. This is without taking account of the costs incurred by all the other countries involved. Governments, private businesses and individuals have suffered a great deal to satisfy Uncle Sam.

One further disadvantage which is emerging is that many advisers and institutes alike have taken a decision not to do business with US expats on the basis that their tax regulations tend to make them complex and costly to deal with. Is this the end of the freedom for US expats to choose offshore tax havens as places to invest?

Whilst the IRS is becoming wiser by implementing their new procedures, there are ways for US expats to use the existing rules to their advantage. You can structure your assets and make them FATCA compliant, whilst mitigating tax liabilities through totally legal means.

Come and see me. Unlike many other advisers I am perfectly willing to accept US clients and assist them with their overall affairs including taxation.

Questions to the author can be directed to PFS International on 02 653 1971 or email to

Andrew Wood has been an expat in Asia for 34 years and is Executive Director with PFS International. He has been writing Net Worth articles for six years and has made a significant contribution to the PFS library of financial service articles dating back over nine years. These articles which cover the complete A-Z of financial planning are available to readers on request.



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