The Foreign Account Tax Compliance Act (FATCA) – which became law in 2010 – just recently came into full effect. The results are frustrating for Americans living abroad as they struggle to find foreign banks willing to serve them.
Stu Haugen, an American who lives overseas, recently wrote in the New York Times:
Intended to crack down on people who stash taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. abroad, the law requires foreign banks to identify American clients and report all of their financial account information, including transaction details on checking, savings, investment, pension, mortgage and insurance accounts, to the United States government. Banks and financial institutions that do not comply are subject to a 30 percent withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on revenues generated in the United States, a crushing penalty in today’s cross-border financial markets.
The bureaucratic burden of identifying, verifying and reporting has caused many banks to regard American clients, particularly those of moderate means, as more trouble than they are worth. Middle-class Americans living abroad are losing bank accounts and home mortgages and, in some cases, having their retirement savings exposed to debilitating taxes and penalties.
Haugen shares examples of a couple in Switzerland that was told they would lose their mortgage, a businessman in Brazil would was passed over for promotion at work, and a couple in Australia who were told their bank account would be cancelled.
International tax laws such as FATCA have led to a number of Americans giving up their U.S. citizenship, so they can live normal lives abroad. In fact, a record number of 1,335 Americans living abroad gave up their citizenship in the first three months of 2015.
It's unfortunate. A well structure tax code shouldn’t push U.S. citizens to make that choice.Share