In May 2014, the government of Singapore concluded in principle, an Intergovernmental agreement with the government of the United States. This agreement, commonly known as FATCA, stands for the Foreign Account Tax Compliance Act. Over the past several months, the publicity around this regulation has encouraged US expats who may not have been fully tax compliant, to take steps to becoming compliant with their US tax obligations.
Unlike other nationals, US persons resident outside of the US, must still report their worldwide income, and foreign financial assets above a certain threshold, to the Internal Revenue Service every year. Failure to comply carries pretty stiff civil as well as criminal penalties.
Certain financial institutions in Singapore and other jurisdictions outside of the US, have now agreed under FATCA, to report the financial holdings of clients who appear to have a connection to the US. Financial institutions will be required to deliver these reports even if the client does not present US identification and/or presents themselves as non US persons. Financial institutions who fail to comply may be subject to certain penalties under FATCA.
For some American expats coming into compliance, the process has been a particularly painful and expensive one. Many agree that they wish they had been aware of the facts before getting involved in certain investments which turned out not to be US compliant and for which, they may be penalized from a US tax perspective. I hope that these these four (4) points help US expats thinking about investing outside of the US…
Consideration #1 – remember the FBARs. FBAR stands for Foreign Bank Account Report and is not a tax but simply a report that all US persons with financial assets (including brokerage accounts, non US pensions etc etc) held outside of the US, may be responsible for filing. It is separate from the tax return and is due by June 30th every year. It is not new and has been in existence since the early 1970s. The penalties for non compliance however, have since become quite severe so it is certainly a report to be taken seriously.
Consideration #2 – remember the FATCA forms. Since 2011, US persons with aggregate foreign financial assets above a certain threshold are responsible for filing a form similar to the FBAR called Form 8938 or the FATCA form. This one is included with the actual tax return but is simply a report and is not a tax.
Consideration #3 – seek professional advice before you invest in anything. Most financial advisors in Singapore are unfamiliar with US tax obligations. Even if an expat financial advisor claims to be aware of US tax considerations, always take the policy / fund documents to a US qualified tax professional before investing / buying into anything. More so than ever before, US tax professionals are alert to non compliant financial products. Plus the new IRS disclosure programs focuses on US taxpayers who were poorly served by tax professionals. So US qualified tax professionals are uniquely motivated to ensure clients do the right thing.
Consideration #4 – it provides an extra measure of comfort when your expat tax professional is a US person as well. That way you know that they go thru the same challenges that you do too. It is therefore more than just a job for them.
Of course, there are many considerations. But it is definitely the right start for those of us who want to stay on the right side of the IRS and avoid civil and criminal penalties.
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