Tax for Expats in Luxembourg
FBAR Tax Compliance & Offshore Voluntary Disclosure for US Expats in Luxembourg
Luxembourg has long held a reputation as a tax haven with a convenient location right in Western Europe sandwiched between Belgium and Germany. Despite its relatively modest population of just over 500,000, the wealthy nation exercises influence that exceeds both its population and geographic area. Luxembourg is home to a stable, advanced economy where growth in financial sectors has offset the decline in its heavy industry. Luxembourg is also a world center for investment funds trailing only the United States in levels of investment, and a favorite location for US expats. However, to understand the tax for expats in Luxembourg, one must consult with an experienced international tax attorney. Recent measures to attract high-tech corporations and entrepreneurial start-ups has seen major corporations like Amazon and Skype rebase their operations and move their regional headquarters to Luxembourg.
Many Americans and American companies decide to make Luxembourg home for a time to take advantage of these opportunities. However, even as an American expatriate living in Luxembourg, you still maintain a duty to file and pay U.S. taxes. Furthermore, acts by Congress have created additional financial disclosure duties, namely FATCA and FBAR reporting duties, that U.S. taxpayers must comply with or face serious penalties.
What is FBAR?
Report of Foreign Bank Accounts or FBAR has long been a requirement for taxpayers due to provisions of the Bank Secrecy Act. However recent changes to the law created a penalty for non-willful FBAR violations in addition to the already harsh penalties for willful FBAR violations. This obligation requires a U.S. taxpayer with an interest in or signature authority over a foreign financial account where the balance or aggregate balance exceeds $10,000 to disclose the account to the U.S. government. This disclosure must be made by June 30 each year. The disclosure can only be made online through the Banking Secrecy Act’s e-filing system. While the convenience of the e-filing system is an improvement over the old-fashioned paper method, convenience should not be confused with informality. When a taxpayer files and discloses his or her covered accounts, they do so under the penalty of perjury and remain responsible for the consequences of any inaccurate or incomplete disclosures.
What is the punishment for failing to file FBAR?
The failure to file FBAR can be punished severely. However the level of punishment is commensurate with whether the IRS agent believes the noncompliance was willful. A willful act is one that is done voluntarily or intentionally in violation of a known legal duty. In context of FBAR, signs of intent or willfulness can include intentional steps to avoid learning of the FBAR obligation, transactions structured to avoid reporting obligations, moving foreign accounts from a jurisdiction under investigation to one that is not, transferring offshore funds to relatives, depositing funds using a foreign pass port by an expat, excessive dealing in cash and many other behaviors.
If it is believed that your FBAR violation was willful, you could face penalties including:
- The greater of $100,000 or 50 percent of the account balance.
- This penalty can be imposed for each year FBAR is not filed because each year is interpreted as a new violation potentially leading to penalties that exceed the original account balance (Up to 250% theoretically possible).
If you face criminal charges based all or, in part, on your failure to file FBAR. Penalties could include up to five years imprisonment, a fine of $250,000, and liability for costs of prosecution. If the FBAR violation was in furtherance of another financial crime or occurred while violating another law, penalties can be further enhanced. To find out more about possible violations and penalties visit us here
Expatriates must also comply with FATCA and be wary of FATCA disclosures by financial institutions
FATCA has been the target of criticism from domestic and foreign sources. Among its effects, FATCA requires foreign financial institutions to disclose U.S. linked accounts. These disclosures are typically made through the framework of an international agreement between the foreign government and the U.S. government. Therefore, when assessing one’s risk, it is essential to fully understand the type of agreement and the information that will be exchanged. Financial institutions will comply with this disclosure requirement because those institutions that fail to do so are subject to a 30 percent withholding regime. If you have relied on secrecy to conceal income and accounts, your risk of detection has never been greater.
FATCA violations by individual taxpayers can also result in harsh consequences. FATCA requires U.S. taxpayers to disclose a broad array or foreign assets and financial accounts. The exact thresholds that trigger a disclosure obligation varies depending on the taxpayer’s filing status and country of residence for the tax year. As a general rule, taxpayers who file jointly and living abroad for the tax year have the highest reporting thresholds. Penalties for FATCA violations begin with a $10,000 penalty for non-willful violations and can escalate to criminal penalties for willful violations.
Tax lawyers can assist expats in the UK with FBAR and FATCA
Expats in the UK must comply with an ever-changing & complex array of tax and disclosure laws. The penalties for violations these obligations are harsh and can include, at least, six-figure fines and lengthy prison sentences. In light of these harsh consequences, understand tax for expats in Luxembourg and rely on a tax professional can provide you peace of mind while keeping you compliant with all of your tax obligations. To schedule a reduced-rate consultation, call the Tax Attorneys and CPAs of the Tax Law Offices of David W. Klasing, P.C. at 800-681-1295 .