On January 6th, more former tax havens signed Foreign Account Tax Compliance Act (FATCA) agreements with the United States. Leading banks in the Isle of Man, Jersey and Guernsey have all signed FATCA agreements, and will now pass financial information about United States citizens with accounts at their banks over to the Internal Revenue Service. These banks had formerly been secretive tax havens, helping Americans avoid U.S. taxes for years.
FATCA was passed by Congress in 2010 and went into effect on January 1, 2014. FATCA requires foreign banks to report to the Internal Revenue Service all assets surpassing $50,000 that belong to United States citizens, regardless of whether they are living in America or abroad. The IRS will then cross-reference the data against U.S. tax returns to ensure taxpayers are paying taxes on their offshore accounts.
There is pressure throughout the world to join FATCA, because remaining outside FATCA means restricting trade with U.S. financial institutions and banks, which would have to deduct a 30% withholding tax on all financial transactions with non-FATCA registered foreign financial firms.
Other key nations that have already signed FATCA agreements include Switzerland, France, Germany, Spain, Italy, and Japan. Furthermore, Russia and the Asia Pacific financial centers of Singapore and Hong Kong have all indicated they will be joining FATCA.
This should make you think — is there really anywhere to hide anymore? Any foreign financial firm that does business with U.S. financial institutions is most likely going to sign a FATCA agreement, rather than face that 30% withholding tax. Therefore, if your foreign bank hasn’t signed a FATCA agreement yet, chances are they will be soon.
If you thought you were safe because your bank has been under the radar of the IRS, think again…it is only a matter of time before your foreign bank hands over your account information to the IRS. Don’t take a “wait and see” approach, and hope for the best, because you will end up being too late to avoid criminal prosecution. You have to make a voluntary disclosure to the IRS before your foreign bank hands your account information over.