FATCA
It makes bankers and fund managers around the world’s blood boil – and has forced many of them to stop accepting US clients altogether.
The end of banking secrecy. Goodbye, privacy. Hello, global tax prison.
Since its inception into US law in 2010, I’ve been quietly tracking FATCA and the implications for America in the global marketplace.
FATCA has made it difficult for Americans outside the US, and some consider this act by Congress an indirect form of currency control: where the government forces you to use only their currency.
If you aren’t up to date, FATCA requires any non-us foreign financial entity (FFI), or any business with more than 10% beneficial ownership in a non-financial foreign entity (NFFE) to comply with FATCA, with laws originally requiring:
- Registration with the IRS
- Identification of any and all US persons involved
- Information sharing with the US government.
In a dramatic overstep of appropriateness, the US government asks for foreign companies and banks to spy on US citizens at the expense of the foreign company.
FATCA also means more paperwork for US taxpayers come tax time, as additional forms, such as form 8938, must be filed if any foreign accounts exceed $50,000. This information is then matched up with forms collected from the FFI or NFFE in an effort to dispel tax evasion. However, the only thing FATCA has done is create a huge burden for companies completely unrelated to the United States, and turn US clients into a global black sheep within the international investment and banking community.
Forced Compliance
Americans are an important market for many of these FFIs and if they already have clients, they need to comply, or shoe them away. This is because if they refuse to comply, there will be across the board 30% withholding tax on all money that passes through the US (this is dramatic, as most beneficiary wires pass through the United States.)
For instance, if you are a ‘non-compliant’ FFI, when you send money from Hong Kong to Belize, you would need to use a beneficiary bank in the US, and the US could withhold (steal) the money at that point.
So most banks chose to comply, but obviously, this is an expensive undertaking; larger banks report that it costs them upwards of $100 million to become compliant.
Most foreign entities can’t put forth the capital required for teams of accountants to ensure compliance with FATCA – so most banks, finance corporations, and others have simply refused to take on Americans as clients. Smaller institutions and funds don’t have the necessary funds to become compliant, and their only option is to end all relationships with US clients. Others shelled out millions because they wanted to be ready.
However, their money may have been spent in vain, as there has been a recent shift which could change the tide of all this. The US government provided additional guidance this week in an attempt to gain further compliance with their global tax rules.
New Rules
Instead of reporting directly to the IRS, the FFIs and NFFEs will report to their own government, if the government decides to sign a reciprocal agreement with the IRS. So far the U.K. France, Germany, Spain, and Italy have agreed to such a deal in one form or another (although essentially this doesn’t change much, as there was already an information exchange agreement in place). However, through the new agreement, there will be an “automatic” exchange of information, mostly based on bilateral tax agreements that include information sharing.
Which means if you are a resident or citizen of any of the aforementioned governments, you can count on your account being disclosed to other governments.
FATCA achieved its principal goal in the end: eliminate bank privacy. Congress estimates it will generate additional funds, but more likely the looming threat of 30% withholding will devastate direct foreign investment in the United States.
As it stands, foreigners perceive the US as a stable place to park money, buy stocks, land or real estate etc. US laws are abundant, and for better or worse, you can easily sue just about anyone, so it’s seen as a safer place to do business than an emerging market.
Just as Americans should be looking at internationalization of their assets, wealthy investors from China, Australia, and other places around the world see the US as a safe haven for increased diversification, to lower their sovereign risk.
Already, foreign direct investment has declined one-third since the 2008 financial crisis. Investors no longer see the US as a safe place to park money, because gains on their investment could be confiscated upon repatriation.
Blowback from FATCA
Ever-looming is the threat of the draconian 30% withholding tax, and its guaranteed this will have unintended consequences for the US economy.
Just as the EURO is seeing a currency crisis, the same may soon happen for the United States. You are never safekeeping all your eggs in one basket, and the best way to achieve diversification is through international investing.
Currency Hot Potato
When the outside world stops looking to the US economy as a safe place to park money, the dollar will lose its status as the world’s reserve currency. When the dollar drops 30% overnight, and a third of your hard earned wealth is wiped out… it will be too late to set up a foreign bank account. Don’t be the last one holding dollar; diversify now.
Don’t wait until its too late, or Congress passes another new law, Americans can still open a bank account in secure jurisdictions like Singapore or Hong Kong, but only with an introduction. I can provide you that all-important introduction to a foreign bank which will protect your freedom, privacy and wealth.
The Ultimate Freedom Plan
For those Americans who don’t want to deal with this tax compliance nightmare anymore, there is only one answer: expatriation and renunciation of your US citizenship. To do this, you do have to first secure a second citizenship.
You can get a citizenship in Singapore, citizenship in Cambodia, citizenship in Ireland, citizenship in Uruguay, Citizenship in Belgium.