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
I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.
2 comments on “New Countries On FATCA: India & UAE… What This Means For You!”
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.
Claiming that FATCA has resulted in negative “unforseen consequences” is just as commonplace as the claim that it’s intended goals are “noble” or such like. This is laughable. I see no reason to give the US/Treasury and IRS the benefit of the doubt on this. It would imply stupidity on their part on a truly grand scale. No, they knew very well exactly what the consequences of this disaster would be, and have very well earned the contempt felt by “US persons” around the world.
The IRS and the Treasury are just enforcing laws on the books since a long time, dating back to the Kennedy era. For a while, enforcement was lax, and it was even hard to find out how to be compliant — the IRS certainly didn’t know when one asked them.
The contempt of US persons should be directed at Congress, who due to typical Congressional paralysis don’t seem to be able to fix even this simple issue. FATCA makes good sense for a US-based person who only would use a foreign account for tax evasion.
It does not make sense for US persons resident abroad. Such people contribute only marginally to taxes collected each year, yet the bureaucracy incurred in making such people compliant is expensive for the IRS, the US person, and now for the FFIs with which such people must do business. US banks are simply not equipped to do business abroad.
So Congress should have switched to residence-based taxation years ago. Republicans have made this a party plank, but failed to act on it so far. One strong proponent of repealing FATCA was Rand Paul, but he seems now to be off on a quixotic quest for a flat-tax in order to propel himself to the head of the Republican pack running for the GOP presidential nomunee.
So much ‘policy’ made by Congress is more consistent with re-election and career advancement, but not with good government, it’s sickening.
This problem is where the disgust of US persons, both those abroad and homelanders, should be directed.
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