FATCA Bring Trouble for U.S. Citizens Abroad

Posted on September 23, 2022

FATCA Bring Trouble for U.S. Citizens Abroad

To curb tax evasion, the U.S. brought in Foreign Account Tax Compliance Act (FATCA) in March, 2010. According to the IRS, “FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts”. The law requires U.S. taxpayers to report foreign financial accounts and offshore assets to the IRS. Reporting also needs to be done by foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Each year, the government loses billions in tax evasion. Nasdaq shares how FATCA is affecting millions of Americans living abroad:

“But based in part on the success the government had in working with UBS [the Swiss global financial services firm], a controversial law has already affected millions of expatriate U.S. citizens who live in other countries.

To root out more tax evasion, the Foreign Account Tax Compliance Act requires foreign banks and financial institutions to report assets that U.S. citizens hold overseas. Congressional estimates put the value of lost taxes at as much as $100 billion annually.

But the problem is that for an estimated 6 million Americans who live abroad, the law doesn’t just cover seven-figure Swiss bank accounts. Americans and their banks have to complete complicated paperwork just for ordinary checking and savings accounts, making even ordinary aspects of personal finance a lot more onerous.”

The problem is not restricted to paperwork. The law has also made it difficult for American expatriates to deal with banks in foreign countries. Nasdaq elaborates:

“Meanwhile, many American expatriates are having trouble even finding banks willing to deal with the paperwork. Increasingly, foreign banks don’t want U.S. customers because of the disclosure laws.

In fact, some American expatriates are so fed up that they’ve renounced their U.S. citizenship over the law. Especially among wealthier citizens living abroad, the tax savings from changing citizenship to low-tax jurisdictions can be too much to pass up. That’s part of what motivated Facebook co-founder Eduardo Saverin to give up his U.S. citizenship just before Facebook’s IPO last year in favor of Singapore. The move saved Saverin from potential capital-gains tax liability and earned him lower rates on future earnings.”

FATCA is curbing tax evasion, but average American expatriates are now forced to deal with more tax regulations. The effects of the efforts of the IRS at targeting tax evasion to increase government revenue and improve tax compliance will soon be more visible, both in positive and negative ways.