Tax Series Part 6 - American FATCA - what US professionals working overseas need to know

by Sanjna Melwani, international assignment (tax) expert in Articles

DatePosted on August 05, 2016 at 03:23 PM
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What is FATCA?

This law, known as the Foreign Account Tax Compliance Act, came into effect in March 2010.  

Simply speaking, the aim is to ensure that the financial interest in or signature authority over foreign financial assets by US persons (the definition covers  US citizens and resident aliens) is reported to the US tax authorities. Moreover, FATCA is aimed at foreign banks or governments to ensure that they report balances of their US account holders residing in their jurisdiction back to the US government.  

The FBAR

US persons are required to report a financial interest in, or signature authority over, financial accounts located outside of the United States if the aggregate value of the accounts exceeds USD10,000 at any time during the year. This reporting is made to the Department of the Treasury annually using a form known as the 'Report of Foreign Bank and Financial Accounts' ("FBAR").

See also: https://www.fincen.gov/forms/bsa_forms/fbar.html 

Detailed guidance is given in the IRS websites of what is considered as a 'foreign financial account'. The due date for disclosure used to be June 30 following the calender year in question (e.g. for calendar year 2015 FBAR, the due date for uploading this report was June 30 2016).  For 2016, however, the deadline may be moved forward to match the tax reporting deadline, i.e. to April 15, 2017 for 2016 FBAR.

Key points:

•    FBAR goes to Department of Treasury
•    Minimum disclosure threshold: exceeding USD10,000, aggregate accounts
•    Due date: June 30 (April 15 going forward)

Form 8938 — disclosure of 'foreign financial assets'

In addition to the FBAR, specified individuals (whose definition covers U.S. citizens and resident aliens) with an interest in specified foreign financial assets are required to report these assets on a Form 8938 which is attached to the tax return (usual filing deadline is April 15 following the calendar year in question).  

The threshold for reporting is as follows:

•    If the person is living in the United States, the aggregate total value of the foreign financial assets exceeds USD50,000 on the last day of the tax year or more than USD75,000 at any time during the tax year. If your status is married and you file your returns jointly, the numbers increase to USD100,000/USD150,000, respectively.
•    If the person is living outside the United States, the aggregate total value exceeds USD200,000 on the last day of the tax year or more than USD300,000 at any time during the tax year. If your status is married and you file your returns jointly, the numbers increase to USD400,000/USD600,000, respectively.

Detailed guidance is given in the IRS websites of what is considered a specified foreign financial asset and includes assets such as foreign real estate held through a company.

Key points:

•    8938 attached to tax return
•    Minimum threshold: exceeding USD50,000, aggregate accounts
•    Due date: April 15

FATCA 

Given that many US persons are not aware of the requirements for FBAR and Form 8938 reporting, the object of FATCA is to obtain similar information from foreign financial institutions or governments.  As such, it is advisable to start reporting these accounts as soon as possible by way of the various disclosure programs available to individuals. These include the offshore voluntary disclosure program, streamlined filing compliance procedures and delinquent FBAR submission procedures, depending on your situation.

It is advisable to seek early advice on these programs, especially because financial institutions or governments which are signing FATCA compliance agreements will be reporting these accounts back to the US. Significant penalties can be imposed for non-compliance with the reporting requirements of the FBAR and Form 8938.

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Also in this series:  

Tax Series Part 6 Hong Kong International Assignment (American FATCA and Form 8938 Reporting)
Tax Series Part 7 Hong Kong International Assignment (US Estate Tax Implications – Americans and non-American Investors)
Tax Series Part 8 Hong Kong International Assignment (Departure from Hong Kong)

 

About the Author

Sanjna Melwani, international assignment (tax) expert

After graduating from The Hong Kong Polytechnic, Sanjna commenced her international accounting career with Arthur Andersen, where she qualified for her ACCA. There then followed a tenure as an international tax advisor to globe-trotting Executives in the International Assignment Services (IAS) division of PricewaterhouseCoopers.  She has had a successful career which also covers expense management and HR advisory.

Sanjna now runs her own tax consultancy, Apex Tax Advisory, helping US citizens with their tax matters whilst working abroad, and assisting returnees to the United States.  She is based in Hong Kong.  

If you're an US executive looking to move to Hong Kong (or indeed already living in Hong Kong) and in need of understanding your tax affairs, you can contact Sanjna by email: sanjna@apex-tax.com

Sanjna Melwani, Director
Apex Tax Advisory Limited
E-mail: sanjna@apex-tax.com

Telephone: +852 5617 6573

Address: Room 2207-9, Tower Two, Lippo Centre,
89 Queensway, Admiralty, Hong Kong
www.apex-tax.com

Note: the views and beliefs expressed by our independent contributors are of their own and do not necessarily represent the views of Star Anise.  All tax matters of an individual are unique to that individual, and tax advice should be tailored to suit that individual's needs. 

 

 

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