First, from an American in China:
One aspect of the FATCA law not mentioned in your pieces as yet is the issue of joint accounts. If an American has signatory power on an overseas account (and assuming it reaches the relevant limits in equivalent dollar amounts), it must be reported. There are two common cases where this can be a disaster. One is the case of a jointly held account where the American's spouse is a foreign national. As you might imagine, said foreign national might not be eager to hand the IRS 25% of their life savings simply for the fact of not having previously told the IRS that these life savings were in a bank account that is outside the U.S. and for which there might well be (and probably is) no income whatsoever owed to the IRS. I must think that the easiest and probably the most common way out of this dilemma will be for the American spouse to simply relinquish signature authority on the account. This is not something the U.S. government should be forcing to happen.Now, from an unwitting American in Canada:
The same thing applies in the case of a joint business venture of some kind where the American is one of several people with signature authority on a business-related bank account. Naturally the foreign partners would be horrified at the idea of subjecting such an account to the whimsical grabbing of the IRS. And again, we are talking about cases in which the penalty is simply for non-reporting; there is no question of income tax being owed, the penalty is assessed merely for having failed to report the account. As in the case of a marital account, the simple solution is for the American to relinquish signature authority. And as in the case of the marital account, this is not something that the U.S. government should be forcing to happen to its overseas businessmen, IMO.
The biggest problems stemming from this law are here in Canada because there are so many dual American/ Canadian citizens. Canadian banks are beside themselves with worry and exasperation because they do so much business in the U.S. that they can't afford to offend the IRS but complying will break our privacy laws...After the jump, a view from the Baltic.
There is another problem connected to this, namely who is, or is not, an American citizen. My husband and I were both born in the U.S. to Canadian citizens but have lived in Canada most of our lives. When we came of age, in the 1950's, dual citizenship was not available so we both elected to be Canadian citizens because we were, after all, Canadians. We applied for and received Canadian citizenship certificates and believed that we were not American citizens.
However, years later, your country decided to rescind this law so that dual citizenship became possible. Moreover, you made it retroactive. So now, all sorts of people who never considered themselves American citizens are told that they are citizens and have to follow American tax law. As far as we are concerned, the IRS can betake itself to some nether region, given that we are getting too old to care but there are others who are much younger who do care. Some say they will reject their American citizenship but are told they can't do that until they settle their tax problems.
I don't know how this is going to work out but I do know that it makes me very angry. Americans are great people but clueless about other countries, especially Canada; your government is something else again.
A reader in Estonia writes:
I'm an ex-pat by chance: almost 3 years now in my wife's country of Estonia. If we could afford preschool, health insurance, etc. in California, we would probably return there soon than later. But I've managed to carve out a little living for myself in Estonia as a translator, but the taxation issues are incredibly difficult. I'm thankfully in compliance with all the American taxes and filing requirements, but have been flying under the radar, tax-wise, here in Europe so far. I've calculated we would probably be paying something like 70% of our gross income in taxes if we were to do the right thing under both governments! Obviously, there should be some exception to help us avoid double taxation, but there's no social security tax treaty between the USA and Estonia, so as a self-employed person I am totally screwed.To clarify the Bank of America point: something that makes you scream, or even whine, as an expat is the 3% or 4% "currency fee" tacked onto most U.S. credit-card transactions and other dealings in a foreign currency, and the also onerous though often smaller fee for ATM withdrawals from U.S. banks. I spent inordinate amounts of time during our years in China figuring out how to get around these gouges (and came up with solutions! But I'm not telling), because they just seem so usurious.
Moreover, as I understand, the US filing requirements if I were to form a company here would be massive, so it's too daunting. But in Estonia, there's no way to deduct a single penny of business expense without forming a company.
Of course, all of these problems existed pre-FATCA! And now I assume it's going to be a struggle to keep any of my "foreign" bank accounts once the IRS actually defines what they want (and if I understand, they have NOT yet been able to say what the exact requirements will be, even though they expect full compliance by 2013). Without these "foreign" bank accounts, I will have to inconvenience my clients and ask them to pay me at a US bank account, then Bank of America will extract a large cut from my income for the privilege of receiving client payments. And honestly, the thought of giving 3% or 4% of my income to Bank of America is enough to make me vomit (and then seek a second passport...just in case).
If you're a big financial combine, you can wire huge sums from one currency to another. If you're an actual person, it's like driving on I-95 through Delaware, where you spend most of your time paying tolls. So I have already put myself back in the mindset of the beset expat, and I understand why my overseas countrymen get exasperated.
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