Americans living overseas are making life choices owing to Foreign Account Tax Compliance Act (FATCA). Due to the new, much stricter compliance rules, many Americans living overseas feel they have to choose between being a citizen of the U.S. or of the country of their residence. For many Americans living abroad, the decision to renounce their U.S. citizenship is not that easy.
FATCA requires all U.S. citizens living abroad to report their income and assets to the IRS. Failure to comply with the reporting requirements attracts stiff penalty. Many Foreign Financial Institutions (FIIs) are also required to report the financial transactions they have with the U. S. citizens.
The reporting requirements are expected to increase transparency and thereby limit tax evasion. Under FATCA, the U.S. has made agreements with many countries, including Switzerland, Denmark, Ireland, Spain, Japan, France, Canada, Norway, United Kingdom, Germany and Australia. Efforts are being made to make FATCA agreements with more countries.
For many Americans living abroad, FATCA means the severing of their ties with the U.S., which in some cases run back for decades. The difficulty of complying with strict tax reporting requirements is still making many Americans living overseas to renounce their U.S. citizenship. Sadly, the effect of tax rules here goes beyond mere finances.