The Foreign Account Tax Compliance Act (FATCA), designed to ensure that Americans with foreign investments and/or living overseas, pay all their taxes, took effect Tuesday.
And that makes it a "dark day for the 7 million Americans living overseas and for U.S. firms that operate globally," says Nigel Green, CEO of deVere Group, a financial advisory firm that has 80,000 mainly ex-patriot and international investor clients.
FATCA is "imperialistic,"
he says.
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The law requires foreign financial institutions to provide the IRS the financial information of American clients who have accounts with more than $50,000.
"It is claimed by its proponents that this new tax act is designed to catch tax evaders who illegally shelter money offshore," Green says. "This is a noble aim. But FATCA cannot possibly tackle this important global issue effectively due to its dragnet, untargeted approach."
What it does instead is to label Americans who live and/or work abroad as "financial pariahs," he says. Americans living overseas "are now routinely rejected from foreign financial institutions, . . . because FATCA’s costly and onerous regulations mean Americans are now typically deemed more trouble than they are worth."
U.S. businesses operating overseas also "are now often branded with a leprosy-like status," Green says. "Clearly, this can only be detrimental to their global competiveness and could, in turn, hit American jobs and the long-term growth of the U.S. economy."
Meanwhile, Uncle Sam stands to recover only an estimated $1 billion a year, "enough to run the federal government for less than two hours," Green says.
The new law has led many Americans to renounce their U.S. citizenship.
U.S. offices overseas reported that 1,001 U.S. citizens and green-card holders renounced their allegiance in the first quarter, Andrew Mitchel, a lawyer in Centerbrook, Conn., who analyzes Treasury Department data,
told The Wall Street Journal.
If that pace continues, 2014 would best 2013's record of 2,999 renunciations, he said.
The Journal offers tips in several areas to Americans subject to the new law.
- Asset disclosure. U.S. taxpayers with foreign bank/investment accounts that contained more than $10,000 at any point in the previous year must file an annual Foreign Bank Account Report (FBAR) with the Treasury Department by June 30.
- Wages and other foreign-earned income. "U.S. taxpayers living abroad must report income from a job or a business, but each individual gets an exemption, currently around $100,000," The Journal reports.
- Retirement, savings and pension plans. Taxes must be paid on contributions to and investment gains in foreign plans, unlike U.S. plans.
- Investments. There are complex tax and reporting systems for offshore investments made by U.S. taxpayers. "The penalties for noncompliance can be severe," according to The Journal.
- Social insurance taxes. If you work for a foreign company, you are often exempt from Social Security and Medicare taxes. But if you are self-employed overseas, you generally aren't. "One way around the requirement is to incorporate the business, though that can present reporting headaches," The Journal says.
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