Printer Friendly

US foreign account rules raise concerns.

Are you a dual Filipino and US citizen living here, born in the United States, married to a US citizen and/or are in business with a US citizen?

This is for you.

Fatca, which stands for the Foreign Account Tax Compliance Act, is a US law that came into force on July 1, 2014.

It essentially turns local financial institutions, labeled 'foreign financial institutions' (FFIs), into agents of the Internal Revenue Service under the threat of penalties and a withholding tax of 30 percent to report account information on US Citizens, regardless of dual nationality.

These 'FFI's include (but are not limited to): depository institutions (banks), custodial institutions (mutual funds), investment entities (hedge funds or private equity funds) and certain types of insurance companies that have cash value products or annuities.

People are now receiving letters from their 'FFI's asking for permission to waive themselves from the bank secrecy act or possibly face account closure. The FFI is then required to send the account information to the IRS or incur a withholding tax on US transactions/income or even penalties.

Fatca is a law about account information so the IRS can soon cross check this data from the FFI with the tax return, FBAR (Report of Foreign Bank and Financial Accounts) and other forms filed to look for inconsistencies.

US citizens abroad are required to file income tax wherever they live and are exempt from the first $97,600 on income for 2013, which increases slightly every year.

They have signed many agreements to protect against double taxation.

However, many transactions in the eyes of the IRS are not necessarily protected, such as capital gains on the sale of your house or business.

Form 8938, titled 'Statement of Specified Foreign Financial Assets' is new form that must be filed by US citizens who own foreign accounts or other specified financial assets under penalty of up to 40 percent of the asset for being undisclosed. Along with these items, US citizens must file an FBAR, which requires you to notify the US Department of Treasury of any accounts you hold or are signatory for outside of the US if at any time during the year the aggregate balance of your account/accounts reaches $10,000 or equivalent in foreign currency.

What makes it a little ominous is that you have to file it on the Financial Crimes Enforcement Network website. The penalty of not filing FBARs is a minimum of $10,000 per account or possibly up to half the account balance.

Business transactions and operations are not excluded from similar obligations.

Along with these forms, US citizens must file Form 5471 if they own 10 percent or more of a foreign corporation and Form 926 to report capital contributions to foreign corporations.

If you own a foreign LLC or Foreign Trust and/or part of a foreign partnership, you are required to file the corresponding forms or face stiff penalties.

Under Fatca, your business must report accounts if a US citizen is a signatory or has a substantial ownership interest and any penalties can severely reduce the balance, leading to disruptions of activities.

This has been largely hard to enforce until recently when FATCA has forced local FFIs to report on these accounts to root out any US citizens or dual nationals that may not be entirely honest with Uncle Sam.

The problem is that many US citizens and dual nationals don't understand the myriad of complex tax and related laws that they are required to follow as they can be confusing or these individuals unwittingly never knew in the first place.

In order to comply, the FFIs are forced to look for 'US indicia,' which are potential indicators of US citizenship, on their account information which include; US telephone, US address, US ID, US green card, US birthplace and standing instructions to pay amounts to the US. If your account has any of these information, you will likely be asked to sign a form stating that you are or are not a US citizen. Birthplace will affect many dual Filipino nationals due to 'Juris Soli' where if you are born in the Unit ed States, you are automatically a US citizen.

It also affects Filipinos with US green cards as they may meet the residency requirements for the IRS and in their eyes are seen as 'US taxable persons' in the same manner as actual citizens.

Filipino spouses of US citizens are not free from this and may be forced to open nonjoint accounts, putting them in a vulnerable position if the relationship does not work out.

If you are then flagged as a potential US taxable person, you are asked to sign forms clearing up any inconsistencies of US indicia.

However, if you are then deemed a US taxable person, your account may become limited in options, frozen or even closed.

This poses a problem for many people as it can affect home and car loans you have with a bank. It can affect how your business transacts and disrupt operations. It may also make business partners feel uncomfortable with a foreign government looking into to how a local company operates.

This may lead them to divest from the business and refuse to be partners with US citizens as compliance is costly.

This has arguably led to the recent spike in the number of people renouncing US citizenship.

Faced with the daunting task of filing expensive tax returns and related forms with steep penalties, it can make sense why people would choose this option.

The Fatca law takes it to another level which affects one's daily life and can cause huge headaches.

Your whole business and financial life can be turned upside down because the FFIs no longer are willing to provide many services to you and only give you basic tools/accounts because the compliance is very expensive for them.

It is not easy to renounce and one has to make an appointment with the US embassy, which could take time.

Even once the renunciation has been filed, the papers are then sent to the US for approval, which can take months. You are not excused from an exit tax which can be substantial depending on your net worth. Nevertheless, it may be cheaper in the long run to divorce yourself from Uncle Sam.

Complying with all this is expensive as well since you will need to employ a qualified accountant with knowledge of both countries.

If you need more information, the website dedicated to these issues is Canadabased isaacbrocksociety.ca. Canada has one of the largest populations of dual nationals and this has become an issue for many of them.

If you are a dual Filipino/American citizen, now is the time to find out how to comply and get your papers in order with the IRS.
COPYRIGHT 2015 Asianet-Pakistan
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2015 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Philippines Daily Inquirer (Makati City, Philippines)
Date:Feb 23, 2015
Words:1142
Previous Article:Unleashing Asean's potential in e-commerce.
Next Article:The cost of war, benefits of peace.
Topics:

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters