FATCA stands for Foreign Account Tax Compliance Act. As per this act, individuals having financial assets abroad are required to report those assets at the time of filing a federal tax return as per the FATCA filing requirement. Foreign financial institutions are required to report their US account holders.
How it is reported for EXPATS?It is a straightforward process for expats and have no additional tax implications. This rule impels Americans with foreign registered assets to be declared on form 8938. It is applicable if the taxpayer as $200000 per person at the end of the year or $300,000 per person at any time during the year. The limits increases if the person is married and filed jointly.
Penalties:Failing to report the assets on form 8938 incurs a penalty ranging from $10,000 to $50,000 per year.
Foreign Banks and FATCA:All financial institutions like banks, funds, and investment and pension firms are required to sign up and comply with FATCA as per IRS. They need to report the US account holder details to IRS. Currently, there are 400,000 such institutions across the world. Failing to comply they will be charged with a 30% withholding tax when they trade in US markets by the US government. As a negative side of this rule, the foreign banks were facing an extra reporting burden. As a consequence of not increasing the burden of reporting they decided not to serve Americans and also closing their existing American EXPAT client’s bank accounts. They even don’t allow Americans to open new accounts, apply for loans or mortgages. Due to this, thousands of Americans living abroad are unable to purchase their own house or does not have banking or credit facilities for their business. The majority of Americans living abroad are ordinary people. They don’t want to dodge taxes; however, at the same time, they are not even comfortable sharing their bank details like bank balance to the IRS.
5 Things to Keep In Mind while Filing FATCA:
1. FBAR and FATCA (Similarities and Differences)Foreign Bank Account Report (FBAR) is comparable to the Foreign Account Tax Compliance Act (FATCA) in that it is likewise intended to detect tax evaders who use foreign bank accounts to hide money from Uncle Sam. FBAR reporting is distinct in that it applies to foreign account balances of $10,000 or more (even if the balance was kept for only one minute!). If applicable, you must electronically file FinCen 114 by October 15 each year. FBAR only applies to bank accounts; no other assets must be declared. FATCA, on the other hand, is more exhaustive. Although you must record your international bank accounts and other foreign assets, the reporting criteria are significantly higher. FATCA filing is required if your assets exceed the following thresholds:
- Single Taxpayers Living Abroad $200,000 on the last day of the tax year or $300,000 at any point during the year
- Married Taxpayers Living Abroad $400,000 on the last day of the tax year and $600,000 at any point during the year
- Single Taxpayers Living in the US $50,000 on the last day of the tax year or $75,000 at any point during the year
- Married Taxpayers Living in the US $100,000 on the last day of the tax year or $150,000 at any point during the year
2. Identify What All Needs to be ReportedFATCA reporting requirements are more complicated than FBAR reporting requirements. Specified foreign assets make it difficult to determine whether assets precisely fall under this category.
- Foreign pensions
- Foreign stock holdings
- Foreign partnership interests
- Foreign financial accounts
- Foreign mutual funds
- Foreign-issued life insurance
- Foreign hedge funds
- Holdings in international real estate through a foreign entity (the real estate itself is not a reportable asset, but the foreign entity is, and the maximum value of the foreign entity includes the value of the real estate)
- Your overseas home is NOT required to be reported. Confused? We understand. Our specialist CPAs are always available to assist you in determining which assets you may be required to report.