The restrictions on investment products available to Americans make it difficult to invest in markets outside of the U.S. So much so, that it’s causing some Americans to renounce their citizenship. Nearly 2,000 gave up their U.S. passports in 2011, compared with only 235 just three years ago.
In anticipation of Washington’s implementation of the Foreign Account Tax Compliance Act, or Fatca, international wealth-management firms are turning away business from U.S. clients. The new law seeks to prevent tax evasion by Bostonians with offshore accounts and will become active starting in January of 2013. It will require foreign financial institutions to file reports to the IRS on the income and interest payments of their U.S. clients. Obviously, the new law will create additional compliance costs for foreign banks with American account holders.
Proposed in 2009, the Facta legislation was supposed to improve banking transparency and be tough on offshore tax crimes. However, foreign institutions feel like the IRS is outsourcing its tax-compliance function by putting the reporting onus on them. Penalties for not complying include a 30 percent withholding of dividends, interest or other proceeds.
The IRS held a hearing earlier this month to listen to international bankers and see if it could amend some of Facta’s implementation rules in response to the outpouring of responses from European firms.
Already accounts, mortgages and insurance policies are being refused to Americans by foreign money management organizations, and/or threatened with closure. Americans living overseas in countries that are not serviced by American banks may soon have no banking options available to them at all.
Source: businessweek.com, “U.S. Millionaires Told Go Away as Tax Evasion Rule Looms,” Sanat Vallikappen, May 8, 2012