FATCA, or the Foreign Account Tax Compliance Act, was enacted in 2010 and has been in effect since January 2013. This Act was passed with good intentions: to target those who evade tax in the U.S. by not disclosing their offshore accounts to the IRS. That’s good, I thought, people must pay taxes or suffer the consequences.
And then I read on. The key provisions of FATCA force all global financial companies to report the details of U.S. account holders with more than $50,000 to the Internal Revenue Service (IRS), the U.S. tax authority. This is because the U.S. is one of the only countries to tax their citizens on their worldly income.
It means that Foreign Financial Institutes (FFIs) must act as pro bono tax collectors for the IRS, or suffer hefty penalties. It goes on to state that if a U.S. citizen refuses to give out these details then the FFI’s must impose a 30% tax on all payments/transfers associated with the account.
So already, if you’re an FFI, you can start to feel a little twitchy about dealing with FATCA. So what if all FFIs just ignore the whole thing? This Act seems to have thought of everything (but the prejudice it is creating!) and goes on to say that if an FFI doesn’t register with the IRS and comply with these provisions of reporting and taxing, that the FFI itself will be charged with 30% Withholding Tax.
It is (conservatively) estimated that FATCA will have an initial worldly cost of $10 billion, with the cost to a large global bank (like HSBC, for instance) staggering at $100 million. This looked at in the broader scheme of things where the IRS itself has estimated that FATCA will bring in less than a billion dollars in revenue.
It’s only natural that small FFIs are trying to exclude U.S. citizens from banking with them, while the larger banks are dealing with the logistical nightmare with deciding what constitutes a U.S./non-U.S. investor, and sharing that information about their investors to all international branches.
Let’s talk about the legalities of it. FATCA itself, a U.S. piece of legislation, conflicts with the laws of other countries. In some countries the sharing of personal details (as required by FATCA) is illegal for a company to do. Companies who do not want to break the law may not be able to comply with FATCA, and will therefore be charged a Withholding Tax for being a legally abiding entity.
And this even if you are dealing with Non-U.S. transactions between Non-U.S. businesses not in the U.S., you must still conform to U.S. legislation. How is that logical? Simply, it’s not.
Another outcome from the Act could lead to U.S. taxes being imposed on international transactions. The International Swaps and Derivatives Association put it like this:
The pass-thru payment rules could potentially impose US withholding tax on an interest made by a British bank’s London office to a German bank’s Frankfurt office if the German bank is a non-participating FFI and the British bank is a participating FFI, providing the British bank holds any US assets in any of its global offices.
Such a transaction would require the British bank to withhold a 30% tax on the exchange.
There are lots of knitty-gritty, investor-jargon details on this, if you’d like to find out more: http://americansabroad.org/issues/fatca/fatca-is-bad-for-america-why-it-should-be-repealed/
This sort of legislation needs to be repealed. But that can only happen if we all stand up and say ‘what the FAC!’
It wasn’t easy moving to Central America. It’s not easy to uproot your family just like that. You keep wondering – is this really worth
Panama is a smart choice for expats who want it all—in a country that really wants them. Located in the interior of Panama, Boquete is
In an unexpected twist of life, a former fast food king has traded in his crown for a new title: owner of Costa Rica’s first carbon-negative company,