The Foreign Account Tax Compliance Act (FACTA) came into law in 2010 and has changed the way that the US focuses on tax reporting for US taxpayers residing, or holding assets, in foreign countries.
The US Government claims that hundreds of billions of dollars are lost annually due to unpaid taxes by US taxpayers holding assets in foreign countries. The measure, approved by congress, is intended to recoup some of that money.
FATCA, already set into action and gaining traction around the world, will target non-compliance of tax law by U.S. taxpayers holding foreign accounts. The objective is the reporting of financial assets and the focus is on offshore assets, some types of foreign financial accounts and the compulsion of reporting by foreign financial institutions on financial accounts held by U.S. taxpayers, as well as foreign enterprises wherein US Taxpayers hold a substantial ownership interest.
Hurting for cash, many governments around the globe, in addition to the United States, are seeking to crack down on foreign tax evasion. Subsequently, most have agreed to compliance with new transparency laws that have been set in motion by FATCA.
As a result of these changes in law, tax reporting has become increasingly more difficult, requiring taxpayers with foreign assets to file more forms and disclose foreign holdings and assets. In addition to the added difficulty, and expense, of reporting and tax filing, many expatriates feel concerned with wealth preservation, often being required to pay taxes both within their new country of residence, as well as in the United States.
An increasing number of U.S. citizens living abroad, as well as green card holding U.S. foreign residents are saying, “No More” and renouncing their U.S. citizenship. In fact, in the first six months of 2013 alone, more than 1800 people renounced their US citizenship or let go of their green cards and U.S. Residency, choosing to reside, instead, elsewhere.
Some may think these new tax changes presented by FATCA only affect the “fat cats” of foreign investment and holdings such as Wall Street financiers, big corporate executives, and big corporations themselves like Amazon, Apple and Google, but that is not necessarily the case. In actuality, the majority of the people who are choosing to renounce citizenship are really very ordinary people who simply don’t want to deal with the increased complexities and expense of the ever changing US tax code.
In fact, when a cache of leaked documents was received by CBC investigative journalist Geral Ryle, it was discovered that more than 100,000 people held offshore accounts and, while there were some of the wealthy and famous on the list, many of those on the list were ordinary, middle to upper middle class people, from doctors, entrepreneurs, and real estate investors in the United States, to middle class Greek villagers or businessmen from Latin America.
While holding bank accounts in tax havens is perfectly legal, these bank accounts are not meant to be private, and withholding information about foreign assets from the U.S. Government will become increasingly difficult as tax havens around the world step into compliance with the new regulations.
For U.S. Citizens who are considering expatriation in order to avoid dealing with U.S. tax laws and responsibilities, there is a good deal to know, starting with the fact that Uncle Sam doesn’t give up his citizens easily or cheaply, depending on one’s tax bracket as well as current and past tax law compliance. Still, expatriation could be a viable solution to dealing with tax burdens, especially given the lower tax rates that entice repatriation to other countries.