Thread: American Expats, Beware : The taxman cometh

American Expats, Beware
Friday, 25 June 2010



The taxman cometh

The American government, already the toughest in the world on its expatriate citizens over taxes on overseas income, is turning the screws on the world's international banks in the hunt for tax cheats. New laws require the banks to report on those with more than US$50,000 in overseas accounts or face dramatic withholding tax increases.

Numerous tax analysts and businessmen have complained that the campaign to chase down US citizens abroad, at a time when the US is seeking to broaden its trade regime, is handicapping them in convincing talented Americans to go overseas. Americans must pay taxes on all income earned over $91,400 annually although tax exemptions for living expenses mean much more income can be excluded.

"This will only get worse," wrote lawyer and Asia Sentinel contributor Paul Karl Lukacs in his blog, Knife Tricks. "Someone has to pay for the US government's spending, and expats are the obvious target. Few congressmen will care, and most voters will view 'unpatriotic' expats with distaste. You'd think American businesses would object, but, on the other hand, why would they want foreign competitors competing for personnel or investment?"

The immediate effect of the law won't hit those with smaller accounts right away, said Laurence Lipsher, a China-based tax accountant. The US, he said, is going after those with more than US$10 million in overseas accounts and there are enough of those to keep the tax authorities busy for awhile.

The latest laws add to an already stiff burden for US expatriates, who, unlike the overseas workers of almost any other country, are required to pay taxes on the money they earn outside the United States. That is driving up the number of expats renouncing their citizenship. Those giving up their US citizenship in the last quarter of 2009 were twice the total of the whole year of 2008.

The Hiring Incentives to Restore Employment Act, (HIRE) requires that international financial institutions doing business in the United States reveal which of their depositors who are US citizens hold more than US$50,000. Banks which do not comply are subject to a 30 percent withholding tax on all payments made to them in the United States. Obama also signed into law the Foreign Account Tax Compliance Act, or FATCA, (which presumably requires a T at the end) "as part of an ongoing effort of the US government to combat tax evasion of Americans holding bank accounts outside of the United States," according to a bulletin by the American Chamber of Commerce in Hong Kong .

The law, according to the Amcham bulletin, also imposes a 30 percent withholding tax on the income of foreign corporations that do not supply the name, address and tax identification number of any US individual with at least 10 percent ownership in the firm, prohibits US investors from buying or owning bearer bonds, imposes penalties up to US$50,000 on US taxpayers who own at least US$50,000 in offshore accounts or assets but fail to report them, Imposes a 40 percent levy on understatement attributed to undisclosed foreign assets, extends the statute of limitations to six years for for ‘substantial' omissions exceeding US$5,000 and 25 percent of reported income derived from offshore assets, requires shareholders in passive foreign investment companies to file annual returns and requires financial firms to file withholding tax returns electronically, among other provisions.

FATCA also requires all non-US financial institutions worldwide to make full disclosure of accounts of all US citizens and permanent residents, according to the bulletin. That includes institutions such as hedge and private equity funds, trusts, corporations, and partnerships. If they don't do so on a yearly basis for their US clients, they are hit with a 30 percent withholding tax on their US income.

Every transaction by US citizens living overseas must be reported by the taxpayer and the financial institution holding the account, with all foreign currency amounts converted to US dollars at the daily rate of exchange.

The genesis of the legislation appears to have been a February 2009 agreement between UBS of Switzerland and the US government in which UBS admitted it had concealed as many as 4,450 suspicious accounts.

"It became apparent to Congress that large sums of money are deposited in overseas bank accounts held by

US citizens and that some of these accounts are not reported to the IRS," Lipsher told the Amcham bulletin.

Charles Smith, US tax consultant at East Asia Tax and a resident of Hong Kong since 1978, said that "it will cost a lot of money to comply with the new law and it will create a lot of unhappiness and anxiety," creating unintended restrictions on US citizens living and working abroad. That, Smith said, will cause Americans to lose out on the opportunity to do business efficiently in a free market.

But, he concluded, Hong Kong in particular is one of the world's major financial centers, and most institutions will cooperate with the US tax authorities. So American expatriates have a choice. They can take their money to smaller, unregulated banks in smaller, unregulated countries and take their chances on the vagaries of exchange rate fluctuations. Or they can own up for the tax man.

asiasentinel.com

Truly one of the more bizarre pieces of legislation. Why, if living abroad and not using any of Americas facilities and not receiving any benefits of being a citizen, should you then be taxed?

Or have I misunderstood this rule?

You haven't misunderstood this. Populist economics plus broadening the taxable income base since the local one is getting close to milked out. Gotta pay for all those little wars they keep instigating.

Originally Posted by Sir Wilson

You haven't misunderstood this. Populist economics plus broadening the taxable income base since the local one is getting close to milked out. Gotta pay for all those little wars they keep instigating.

Have to pay for those {struggling} imperial conquest.

As far as I know the Help of the Embassy (Switzerland) is not for free. If they have to get you out, they will send you later a nice bill. However the Swiss do not pay taxes abroad, I think thats a better deal.

Btw. if you dont pay Taxes as American abroad, do they send a Aircraft Carrier to force you to pay, or just use you as Training Target for there undercover Agents?

Seems to me that the complaints emanate from a sense of entitlement: The citizen abroad expects to receive top quality services, and not pay for them. Well golly gee, just who is expected to pay for those services? The fees charged barely cover a small portion of the cost of services rendered. In case people have forgotten, it costs money to maintain representative offices and staff. Someone has to pay the rent, the electricity, the salaries etc.

The typical taxpayer stateside is scrambling to keep a roof over his or her head, to pay medical bills and to put food on the table . Yet, citizens fortunate to be able to relocate outside of the USA expect the U.S. taxpayers to subsidize the foreign residents' life of tropical delight. Know what that taxpayer has to say? F--K You. You want to cavort on the beach or chase nubile nymphs, then pay for it yourself.

Yes, lines can be heavy in consular offices. That is because the U.S. Congress has decided that the staffing of those offices is not as important as something else. If the U.S. personnel are not the the best and the brightest, then maybe that is due to the working conditions and salary paid the employees. One hardly joins the foreign service to make a fortune. The DoS salaries are well below those of the private sector. Once the excitement of a foreign posting wears off, there isn't much left in that pay cheque to pay for a lavish lifestyle. It's hard to keep good staff.

^
I might tend to agree with you on a couple of points but by in large, the service I have received at various Embassies has been barely civil. There's no sense of entitlement here - I pay for the passport beyond the Federal Tax Uncle Sam extracts from me. And, what is so hard to limit the numbers of folks who sign up for an appointment time? The web site typically shows many blank times for a given day but when you show up, there are hordes of folks massed into that little room on Wireless Rd.

^^
Whenever I've visited a US embassy abroad I was informed that there was not evacuation plan for US citizens. We were on our own.

Foreign embassies do not exist only to provide services to individuals traveling/living abroad. They are there to maintain political relations with that country. If you really think that taxes paid on overseas income is to defray the costs of services individuals use in that embassy, then why not charge a fee for service actually used instead of taxing income. A tax rate of 28% of 91,500 is a lot of money for personal use of an embassy. I expect the next question would be "...do you know how much it costs to run an embassy...?". I don't, but I think reasonable people can see my point.

Since they also act on behalf of American business overseas, it would be interesting to see how much corporations actually pay in taxes for their earnings in foreign countries (not what they actually pay in taxes after the loopholes).

Originally Posted by MrG

A tax rate of 28% of 91,500 is a lot of money for personal use of an embassy.

You probably know this but if a US citizen has foreign earned income of less than $91,500 then tax is zero. Only amount over $91,500 is taxable. Foreign earned income is wages, interest, etc. which come from a non US registered company. If for example your wages are paid by a Thai company then there is no US tax on amount under $91,500 but you must pay Thai income tax. If you live and work in Thailand but your wages are paid by a US company all your income is taxable.

That's why I set the figure at 91,500.

Originally Posted by Norton

You probably know this but if a US citizen has foreign earned income of less than $91,500 then tax is zero.

So what, beside the point.

it really is not that large an amount either.

and can be changed at any time.