If you are a regular reader of my blog ~ you know the tax geek that I am, I write a lot about tax compliance for foreign bank account holders and the effect of the FATCA. FATCA stands for Foreign Account Tax Compliance Act. Calling a spade a “large digging instrument”, we know this law is one-sided and forces other countries to enforce US tax laws. And if they fail to comply, they are effectively locked out of US markets and the US dollar ~ the “world currency” for now.
Countries that sign the FATCA Agreement or Inter Governmental Agreement (IGA) are considered tax compliant. This means the banks/ foreign financial institutions (FFI) in these countries send information as demanded by the IRS to their own tax authorities which is then shared with the IRS. This is “Model 1”.
Other countries, like Switzerland, for example, leave it up to the banks/financial institutions to come to an agreement with the IRS, this is a “Model 2” agreement.
United Arab Emirates (UAE) jumped on board in February of this year (2015).
If you are a US Citizen and are living in the UAE or are a US citizen living in the US and have accounts in the UAE, you should have filed FinCEN Form 114 also known as the FBAR if you have had AED (Emirati Dirham) 36732 or more which is approximately $10,000; filed Form 8938 if you have had AED 183657 or more (Single- approximately $50,000) and AED 367315 or more (filing Married & Joint- approximately $100,000) at end of the year.
Since UAE has signed the FATCA agreement with the US, the UAE banks/ financial institutions will start to share information with the IRS regarding accounts held by US Citizens, reportedly from the 2nd quarter of 2015.
India signed the IGA with the US early this month on the 9th of July, 2015. Nearly a 1,000 or more Indian FFIs have already signed agreements with the IRS long before, to share US Citizen information, however the official IGA came into place now.
Hence the FBAR thresholds as described in the above would apply to you as well. The 2014 official INR or the Indian Rupee to USD conversion was Rs.63.469 to $1.
Per the Indian press release, FATCA Compliance will cover all new accounts opened by Indian FFIs from July 1st, 2014 on wards.
Do I Have To Be Worried If I had Financial Accounts In these Countries Before the IGA came into place?
Undoubtedly- YES!! If you have had undeclared accounts in FFIs in India or the UAE from before these IGA dates and they exceed the FBAR limits, there are various procedures in place for you to come into tax compliance. These procedures, known as the Offshore Voluntary Disclosure Program or the Streamlined Compliance Procedures, can be used to work with the IRS. There are different penalties involved with the different programs, please talk to your tax professional to determine what is right for you.
Fall Out From the FATCA IGA With Various Countries:
What we are seeing increasingly is that the USD is no longer as welcome in countries as it used to be. This is not because the FFIs do not like US Citizens any more, it is more to do with the fact that the bank/ FFI authorities do not want to have to deal with the additional paper-work involved with having US citizens as their clients.
Not to speak of the confusion in the rules and regulations as instructions are understood and percolated down to every employee who deal with US citizens-customers. Till then, we have had to deal with misinformation and misinterpretation on the part of the authorities in these countries.
Record number of US citizens are deciding to renounce their citizenship due to the increased pressure to report all world-wide income. The expatriation in itself is a herculean task to undertake not to mention the expatriation taxes that are due and hardship caused for any future visits/ immigration to the US by the expatriates themselves or their children. More on Expatriation Tax in my post here.
The unforeseen consequences from this increased vigilance by the US tax authorities and other countries hoping for reciprocal cooperation to bring their tax evaders into tax compliance will be felt increasingly in the years to come I am sure.
I cannot stress enough on the importance of contacting a tax professional knowledgeable in this field if you have questions regarding foreign bank account tax compliance. This is not something I would recommend venturing out as a Do-It-Yourself project.
Bibliography: Form 8938; Form 114; FATCA News Releases