Americans living abroad, don't only need to file tax returns, they also must file FBAR.
Are you an American citizen living abroad? If so, when was the last time you tried opening a bank account in your new country of residence, joining a mutual fund, or taking out an insurance policy? Chances are that you didn’t get the welcoming response that, until fairly recently, the typical American expat used to receive.
Here are some of the an
“We don’t deal with clients from the United States.”
“I have to get special permission for you as you’re an American citizen. Call back.”
“It’s really not worth our while to deal with American clients. Please go elsewhere.”
Suddenly, the greenback just doesn’t seem to be worth the paper it’s written on.
The answer is: FBAR and FATCA. FBAR (Report of Foreign Bank and Financial Accounts) is the requirement for any American citizen with a foreign bank, brokerage, investment, or other financial account to file a tax report to the IRS. It doesn’t matter if you’ve never worked in the States, if you’re already paying taxes to the country in which you live, or if you’ve never been to America in your life but you hold U.S. citizenship through your parents. This requirement cuts across the board, and it leaves many American expats out of pocket. Furthermore, filing an FBAR form is very complicated, with ridiculously high penalties if you make a mistake or accidentally omit any details.
And don’t think that living so far from the United States means that you can get away with it. For that, there’s the FATCA – the Foreign Account Tax Compliance Act. This is essentially another form for those with foreign assets over a certain amount to fill out. And under FATCA, any financial institution abroad that doesn’t disclose the details of its U.S. clients to the IRS gets hit with a heavy tax on any income that it receives from the States. It’s little wonder that many foreign financial institutions are no longer welcoming American clients, and some are even turning away their existing U.S. expat account holders.
If all of this has left you feeling rather hot under the collar, it’s probably a good idea to find out where you stand when it comes to your expat tax requirements. After all, knowledge is power.
Read the book, The Expatriate’s Guide to Handling Money and Taxes, where you’ll find a wealth of information and advice on this subject. It includes chapters by a tax expert, an international tax expert, representatives from American Citizens Abroad, and specialists in international investing for expats.
And by knowing how to deal with FBAR and FATCA, you will hopefully be able to meet the potential problems head on.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.
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