The one thing you should learn from this article is that FATCA is a US law. However, how US banks and foreign banks choose to handle their US accounts regarding this law is changing. No one will know how it will exactly be implemented even as we are close to the date of its implementation which is January 1, 2014. I have personally followed the story on FATCA since 2010 when information became more widely known about H.R. 2847. The law that will change the way many expats do their business outside the United States.
For most people who have already moved outside the United States this law is probably known to them, for those contemplating becoming an expat early in their investigation of doing so, this may not have come to your attention yet. So I will offer a hopefully simple explanation. While I do not claim to be an attorney or accountant and can’t know how this law will personally affect you, I would still like to make you aware of it so you can do your own research on the law.
If you do any searching on FATCA it will bring up the sorted details of it’s inception. I do not want to cover that here. Nor do I want to rehash the history of the ups and downs of this law up until now. I want to relate the current effects we are experiencing today.
Basically, FATCA is a law that was made to deter people from moving money outside of the United States without paying the proper IRS tax on it. In years past, a person could open an account in another country without reporting anything to the IRS. To be fair the IRS has known that millions of US taxpayer dollars were moved offshore into accounts that the IRS could never track or tax.
FATCA will alleviate that, and the IRS hopes to capture back a substantial amount in making sure that money sent outside the US will be taxed, followed and documented.
If that was all to the story, most of us would not have been affected. However the law takes extra steps to insure transparency.
- All banks in all countries are now supposed to be compliant with this law and report accounts to the IRS of any US citizen.
- Banks in the United States have to make sure that the bank YOU want to send money to is compliant with the law, if it is not, the bank itself is required by this new law to hold back 30% of any amount you are trying to send out of the country. This would then be sent to the IRS. The understanding is that when you file your tax return you would receive that 30% back as a refund if you had no outstanding tax to pay.
While these two simple things sound straightforward, they are not. The law left open big gaps in interpretation. Here is what has been reported in Panama.
- Banks whether in the US or anywhere else in the world are now required to do lots of extra paperwork for this law for every US account holder. They do not get paid to do this by the IRS, they are just told to do it. This means more people pushing papers, more expenses.
- To avoid the paperwork on the US side, many banks have elected to simply not do any international wire transfers for their account holders. Not doing any transfers means not having to do reporting to the IRS.
- On the other end, some of the banks in Panama ( as well as other banks around the world, I am sure) are closing accounts for US citizens. Again, avoiding having to report to the IRS.
- Some banks in Panama while deciding to be compliant and keep US accounts are charging between $100-$250 per account to “do the necessary paperwork for the IRS”.
While in Panama all banks will become compliant with the new law, that does not mean that each bank can’t elect to find a way around reporting by just cutting off US accounts. And that is what is happening with a few banks here.
Initially, people who had accounts in the United States became aware of the 30% holding and have reconciled with the idea and found other means to access their money or have decided that they will have no choice but leave 30% behind when doing any transfers. However, now with those same banks not doing any international transfers, many are left with not knowing what to do.
Some expats here have been getting access to their US accounts by using their US banks debit cards at ATM’s here. Others are writing checks to deposit in their banks here from their US accounts back home. As this progresses, no one knows if these two methods will somehow come under the 30% law. As it seems to be ever changing as to how the banks themselves are addressing the law.
I do understand that if you have an account in a foreign country and bank is going to be compliant and keep open your account, they must submit to you a W-9 to fill out that they then send to the IRS. If your bank has not asked you to fill one out before February, you might want to ask the bank if they are going to be compliant.
This is just not about Panama, all banks worldwide are dealing with this new law. As the law goes into full effect, there undoubtedly will be more changes that will directly affect everyone who lives outside the United States.
To understand more please visit IRS Government Publication