Frequently I'll get asked at a conference or seminar about the issue of paying or not paying current income taxation on international earnings. Many people believe that if they generate money outside the US and do not repatriate that money, they owe no tax. But the issue is significantly more nuance and complicated and for most people investing offshore, this belief is just plain wrong.
If it’s January it must be tax season… Many U.S. citizens and lawful permanent residents of the U.S. (green card holders) move to another country and forget or choose not to file a tax return in the U.S. But be warned: The U.S. requires you to file a tax return accounting for your worldwide taxable income-and the statute of limitations never runs out.
In many cases, you may have few or no U.S. taxes to pay, thanks to exclusions and deductions that you may qualify for as an expatriate. But you definitely are required to file if you are a U.S. citizen or residents alien. Not filing can create major issues. For instance, if you live abroad for 10 years and then return to the United States, the penalties and interest you’ve accrued may be more than the actual tax.
For people considering moving assets offshore, the new withholding tax under FATCA (Foreign Account Tax Compliance Act) which was scheduled to go into effect January 1, 2013 was a major planning milestone. That deadline, however has now been pushed back to January 1, 2014 to give foreign banks more time to comply with their new disclosure responsibilities.
Another, perhaps even more insidious deadline, however, is the pending expiration of the Bush tax cut "extensions". The Bush tax cuts were initially scheduled to expire December 31, 2010. In the last few days before the end of 2010, the tax cuts were extended for two years.
One of the most important reasons that people decide to protect assets abroad is to find strong jurisdictions that resist or eliminate many of the traditional threats against wealth. Yet compliance with US laws and regulations has never been more important than today. That begs the question: is it possible to do both? The simple answer is "yes".
Regulatory compliance for foreign based structures and assets held abroad has increased over the past years. Just some of the forms that need to be filed include:
A) The Report for holding a foreign bank account with more than $10,000 commonly referred to as the FBAR. This is an annual form required to be
filed with the US Treasury.
A few weeks ago the United States Senate passed a piece of legislation called the “Moving Ahead for Progress in the 21st Century Act”, it is essentially a transportation bill focused on roads and bridges. Title III of the act is a revenue provision concerning gas guzzling, cars leaking underground storage tanks, import duties and a number of other fees, taxes and other revenue enhancements.
In the waning days of 2010 President Obama and the United States Congress agreed to a variety of compromise tax measures designed to “extend” the Bush Era tax cuts. Tax rates were largely maintained at the current levels through December 31, 2012 at which time they are once again set to revert to their old (higher) levels.
Editor's Note: Last month, international business attorney Joel Nagel listed the first 10 of 20 questions he is frequently asked about international investments by IRAs. This month, he completes that list.
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Editor's Note: This month, international business attorney Joel Nagel explains the impact of a new tax law on banks worldwide -- and how their response could affect you and your finances.
FATCA, or the Foreign Account Tax Compliance Act, comprises sections 1471 – 1474 of the U.S. Internal Revenue Code (IRC). The code sections were passed into law in March of 2010 as part of H.R. 2847, a job creation bill known as the HIRE Act. The law attempts to ensure that U.S. persons don't move money abroad without paying any taxes owed on it to the U.S. government.
