Everything an expat needs to know about FATCA
On July 1 this year, a highly contentious law described by detractors as ‘the worst law most Americans have never heard of’, will require every foreign (non U.S.) financial institution in the world to report American clients’ financial activities directly to the Internal Revenue Service (IRS) if they have assets of more than $50,000.
Just a few years ago a new acronym was introduced to American expats. FATCA stands for the Foreign Account Tax Compliance Act. Passed in 2010 as part of the Hiring Incentives to Restore Employment Act, FATCA is aimed at American citizens who have financial assets in accounts with foreign institutions.
While the law could affect some citizens living in the United States, it has particular relevance for expats. As a matter of convenience, it often makes sense for some expats to keep at least some assets with an institution in the country in which they live. Those expats will now have to report those assets on their U.S. tax returns. A failure to do so could mean serious penalties.
Generally, individuals with more than an aggregate of $50,000 in accounts with a foreign institution will need to fill out a Form 8938 with their taxes. Form 8938 is called the Statement of Specified Foreign Financial Assets.
The required reporting amounts can vary depending on your filing status.
Single filers or married couples who file separately must report foreign assets if they total more than $50,000 on the last day of the year or $75,000 at any point during the year.
Married couples who file joint returns have to report foreign assets that exceed $100,000 on the last day of the year or $150,000 at any point during the year.
The reporting requirement is higher for individuals who live overseas full time.
A single filer or married couples who file separately who have lived for more than 330 days in a calendar year in a foreign country have to report foreign assets that total more than $200,000 on the final day of the year or $300,000 at any point during the year.
Married couples who file joint returns and have also lived in a foreign country for more than 330 calendar days during a calendar year must report foreign assets that were more than $400,000 on the last day of the year or more than $600,000 at any point during the year.
Foreign assets are generally defined as any assets that are held with a foreign institution. Those can include foreign bank accounts, investment accounts with foreign brokerages, foreign hedge funds, and even ownership of foreign company stock.
Foreign stocks that are held in accounts with U.S. brokerages are not considered foreign assets. Similarly, assets held with foreign branches of a U.S. bank are not considered foreign assets.
The penalties for violating FATCA can be very harsh and can include heavy fines and even time in jail. If you think the reporting requirements may apply to you, it’s best that you speak with a financial professional who has a clear understanding of how FATCA works sooner rather than later.d
deVere Group, which has 80,000 mainly expatriate clients globally, has cross-border financial specialists with appropriate experience in this field, to help clients mitigate the negative effects of this highly disputatious new law.