SHARE
COPY LINK
PRESENTED BY TAXES FOR EXPATS

‘The age of financial privacy is over’

Jonathan Weiss hasn’t lived in the US for 25 years. But that didn’t keep his foreign bank account from being frozen in the wake of new US tax laws. Find out how you can avoid the same fate at the hands of FATCA.

'The age of financial privacy is over'
Photo by Scott Graham on Unsplash

“I had been living in Switzerland for ten years, and then out of the blue I got a letter from my bank, saying that since I am an American citizen I had to file some extra paperwork,” Jonathan Weiss tells The Local. “Two weeks later my bank account was frozen.”

Weiss was born in the US, but has lived abroad since age ten, in both Asia and Europe.

“I was just living in Switzerland, working there, minding my own business,” Weiss recalls. “And then I was caught up this net.  I had no idea what to do.”

That was his first encounter with the long arm of US tax law – FATCA.

If you’re an American living abroad, chances are you’ve heard of FATCA. And if you haven’t, you probably should have. Or there may be serious consequences.

“FATCA requires foreign banks to report information to the IRS regarding all financial accounts held by American clients,” Ines Zemelman, a tax agent specializing in expatriate taxes, tells The Local.

“The age of financial privacy is over.”

Over 100 nations have already agreed to provide the IRS with such information, including Germany, France, Spain, Italy, Switzerland, Austria, Sweden, Denmark, and Norway.

The acronym (which stands for Foreign Account Tax Compliance Act) has been floating around since about 2010, when it was signed into US law. However, the new rules only came into effect in July 2014.

“FATCA was attached as a rider to the 2010 jobs bill,” Deedee Gierow, an American expatriate living in Sweden, tells The Local. “The purpose of it was to go after wealthy people hiding money off-shore. But, as is often the case, it was not well thought-out.”

Americans who fail to report their foreign assets can face hefty delinquency fines – but it’s even more complicated than that.

“Most Americans living abroad do not make enough money in their country of residence to owe tax in the US, but they must nevertheless file taxes with the IRS,” Gierow explains.

“The US is one of only two countries in the world which has citizenship based taxation, the other being Eritrea.”

Gierow is chairman of Democrats Abroad in Sweden, and has spent the last year trying to inform fellow American expatriates about the complications of being a US taxpayer abroad. Many Americans in Sweden have been contacted by their banks about limiting services.

“There is no escaping anything anymore, even if you are perfectly innocent,” she says.

Weiss was one of those “perfectly innocent” American expats stung by the legislation.

“It’s targeted at people who are stashing money off-shore, but I just happened to live abroad,” Weiss says. “Anyone who has relations to the United States is being caught up in this net.”

Indeed, Zemelman says it’s not just people with US passports or green cards who are targeted, though they are among the first.

“That would be too simple,” she says.

Foreign banks have a list of various criteria to examine when determining if clients have a significant connection to the US. Every account is evaluated individually.

“A client may have transferred funds to the US or may have an American address,” Zemelman says.

In such cases the bank will send a form to the client asking if he or she is American – and lying on the statement is considered perjury.


Passport photo: Shutterstock

If foreign banks refuse to comply with FATCA, they are slapped with a 30 percent fine on all transactions they have with US banks.

But many countries have secrecy obligations and cannot hand information directly over to the IRS – so they send the information first to their own tax authorities, which then forward the information to the IRS.

“This is very expensive and time-consuming for the banks, and so many banks are closing or denying financial services to US citizens living overseas,” Gierow says.

Foreign banks that provide services to Americans have to ensure that all US tax obligations are met – which means that American clients must provide proof that they are current on their tax filing obligations and their FBAR (Foreign Bank Accounts Report). If not, their accounts can be frozen.

Weiss learned this the hard way.

“I wasn’t aware of any of these things and they only gave me two weeks to respond, and after that they froze my account without warning,” he explains. “They told me I needed to get a professional certification showing that I was compliant, that I had filed all of the FBARs and everything.”

And according to Zemelman, it’s only a matter of time before every American abroad has been contacted about compliance matters.

Zemelman, who has been working with expatriate taxes for 23 years, is also the founder and director of Taxes for Expats, a New York-based tax preparation firm that focuses solely on assisting Americans living abroad.

“Filing back taxes and missing FBARs can be a daunting task when approached solo,” Zemelman says. “But this is something we specialize in. We helped numerous individuals with frozen accounts in Switzerland last year.”

Weiss was one such client.

“I needed someone to help me take care of it urgently,” Weiss says. “It took three weeks to finish everything with Taxes for Expats, and they provided a letter of certification which I took to the bank, and they unfroze my account.”

While the initial compliance shock took him by surprise, Weiss now says that the process of staying compliant is fairly straightforward: he simply files his annual returns with Taxes for Expats who in turn make sure everything is sorted.

Luckily for Weiss, the IRS recently announced a new amnesty programme allowing delinquent American expatriates to get up to date on their FBARs without penalty.

“If you are still in a state of noncompliance, now is the time to act by taking advantage of the Streamlined Filing Procedures,” Zemelmansays. “We’ve helped hundreds of customers since the programme was announced.”

The programme includes filing three years of delinquent tax returns and up to six years of missing FBARs.


IRS photo: Shutterstock

“However, time is of the essence,” Zemelman says, noting that Americans who have already received multiple non-filing notices will have slimmer chances the longer they wait.

“There is nothing permanent at the IRS,” Zemelman remarks. “The IRS uses carrot methods all the time, but this is the fifth programme of its type. Will the next one be better or harsher? There’s no way of knowing.”

The current amnesty programme was introduced during the summer of 2014, but there’s no telling how long it will last. For those who may not have been aware or up to date on their US tax obligations, the time to act is now.

“It’s a hassle-free process,” Zemelman says. “You provide us with an overview of your financial situation, and we prepare and file the return.”

Now that he understands the laws and precisely what is expected of him, Weiss said he is not resentful of the new regulations. But he does wish he had known earlier.

“It was scary,” he says. “People should be aware of FATCA and deal with it proactively so they don’t have to go through what I did.”

This article was produced by The Local and sponsored by Taxes for Expats.

For members

MONEY

EXPLAINED: Everything you need to know about Austria’s climate bonus payment

Residents in Austria will receive up to €200 to compensate for the increase in energy and fuel prices created by the eco-social tax reform. Here's what you need to know.

EXPLAINED: Everything you need to know about Austria's climate bonus payment

The climate bonus, or Klimabonus in German, is an essential part of Austria’s eco-tax reform, a larger project with several measures to incentivise environmental choices such as riding the public transport.

The bonus would offset some of the costs brought by a new CO2 tax in Austria.

READ ALSO: Austrian government unveils ‘eco’ tax reform

“With the Klimabonus, we ensure that climate-friendly behaviour is rewarded and the people in our country are relieved. If you take good care of the climate, you pay less CO2 tax and end up having more of this money left”, Climate Minister Leonore Gewessler (Greens) said on Twitter.

The Austrian government plans to set up a web site with more information on the bonus in June. Until then, here is what you need to know about the new compensation and how to get it.

Who is entitled to the payment?

Anyone who has had their primary residence in Austria for at least 183 days will be entitled to the bonus. Children are also entitled, but if they are younger than 18 years old, they will receive 50 per cent of the respective amount of the climate bonus.

READ ALSO: EXPLAINED: How to get your €500 Kurzarbeit bonus in Austria

“This is the first time that all people, regardless of age, place of residence, regardless of employment or pension or training status, have received a federal payment,” said Gewessler on Friday in the Ö1 broadcast.

What is this ‘respective amount’?

Not everyone will receive the same amount of money. The value changes depending on where the recipient lives and what is the offer of public transport there. Viennese, then, will receive the lowest amount of money: a one-off € 100 payment.

READ ALSO: EXPLAINED: How to claim your €200 voucher for electronics repair in Austria

There are four levels of payment depending on the municipality: €100 for urban centres with the highest-ranking development (which is only Vienna), €233 for urban centres with good development of public transport, €167 in centres and surrounding areas with good basic development of the public system, and € 200 for rural municipalities.

If you live in Austria’s second-largest city, Graz, you fall into the second category and should expect a €133 bonus.

Some exceptions to the geographical rule apply, so people with disabilities who cannot use public transport will receive the total climate bonus (€200) regardless of where they live.

The Federal Government had already stated it estimated that a third of Austria’s population would receive the highest bonus.

How to get the bonus?

The payment is pretty straightforward; there is no need to apply for it, and it will be done directly into your bank account, just make sure that you have it up to date on the FinanzOnline website – the final date to do so is June 30th.

Those who receive a pension and other benefits will receive the bonus in that same bank account.

READ ALSO: EXPLAINED: How freelancers in Austria can pay four times less in social insurance

It is worth mentioning that the bank account doesn’t necessarily need to be from an Austrian bank.

People who don’t have a registered bank account will receive a letter with a voucher that can be redeemed in shops or exchanged for cash at a bank, Gewessler said.

According to the Ministry, payments should start at the beginning of October, and those receiving a transfer will not have to wait for long to see the money in their bank accounts. However, people receiving letters with the vouchers could have to wait a few weeks.

SHOW COMMENTS