American’s Living Abroad and FATCA

Isla Tapu, Phuket, Tailandia - FATCA

An American’s Living Abroad, or an Expat as they’re commonly known, now faces radical changes in how they file annual income tax reports because of the new FATCA (foreign account tax compliance) regulations. Amongst the more common questions and concerns relates to owning offshore mutual funds (held but not sold). This brings us to the onerous regulations found in the Passive Foreign Investment Company (PFIC) Rules.

[box type=”alert”]A PFIC requires annual reporting of income and is taxed at 39.6% regardless of your own personal income tax bracket[/box]

[box type=”note”]Note: Foreign Earned Income Exclusion is not applied on passive income and there is no offset for losses in your investment results.[/box]

The following IRS forms are required to be filed annually:

  • IRS Form 8621=$10,000.00 penalty for each year not filed.
  • IRS Form 8938= $10,000.00 penalty for each year not filed
  • U.S. Treasury Form FinCEN 114 = $50,000.00 penalty for each year not filed
  • IRS Form 3520 – may or may not apply depending on financial entity.

[box type=”info”]Note: a U.K Style life policy is a PFIC eg. Royal London 360, Friends Provident, Generali and etc.[/box]

U.S. Expat Solution:

U.S. Deferred Tax Self Directed IRA with a Foreign Investment Account or a Foreign Government Regulated, Registered with FATCA and Recognized by IRS IRC 402(b) Tax Compliant Deferred Income investing Foreign Retirement Plan Investment Account.


[box type=”tick” style=”rounded” border=”full”]This IRC 402(b) Government Regulated, FATCA Registered and IRS Recognized W-8BEN-E box 29e foreign retirement plan administrator is the Foreign Financial Account holder of plan assets for both within and from beyond the borders of the USA. Click Here to get the Free White Paper[/box]

The most common question U.S. Expats ask about FATCA:

Should I give-up my U.S. Passport because I want to pay zero U.S. tax

At issue here is the rule that the individual is subject to tax on the net unrealized gain on all of his world wide assets as if such property were sold for its fair market value on the day before the expatriation date. You can also be subject to tax for 10 years after expatriation. Another fallacy heard on the street is ”I will ignore their rules because their rules are a bluff” is a red flag with the words Go To JAIL written all over it.

U.S. Expat FATCA Solution:

a) Reduce your investment gains cost of tax by 2/3rd compliantly by the U.S. IRS Tax Code and IRS rules; which means you use government regulated, registered and recognized deferred income retirement plan law formally tax recognized by the U.S.A and Thailand. b) Retired permanent residence of Thailand have tax breaks on final distributions from your U.S. retirement plans when structured compliantly that is formally tax recognized by the USA and Thailand. Even amongst the more savvy Expat’s we hear: My investment advisor is the best but he is not managing my 401k or IRA investments.

Living Overseas Problem: Your current 401k or IRA Trustee provides no access to your investment advisor.

U.S. Expat FATCA Solution:

A correct U.S. IRS regulated and registered Self Directed IRA Trustee will export your investment account and permit you self directed investment choice globally, inside or outside the USA without U.S. person blockage to manager, investment and exempt from foreign financial institution FATCA and Foreign Government exchange of financial information reporting.

One of the main reasons American’s move overseas is because of marriage, which is why a common question is: My spouse is not a U.S. person (she will not pay U.S. taxes after I die).

The issue in these cases: FATCA will not permit the transfer of U.S. Dollars from anywhere to anyone or any entity without knowing the end beneficiary of the money and therefore when sending money to an Alien beneficiary of a U.S. person the IRS registered retirement plan trustee or financial institution will withhold 35% of all your money above $60,000.00 before allowing your spouse to receive it. (If the receiving foreign financial institution is not properly registered with FATCA the sending financial institution will also withhold 30%= Potential loss of 65%).

U.S. Expat FATCA Solution:

Register your Self Directed IRA Investment Account to a specific Foreign Government Regulated, Registered with FATCA and Recognized by IRS IRC 402(b) Tax Compliant Deferred Income Foreign Retirement Plan Fund. You obtain self directed investment choice globally, inside or outside the USA without U.S. person blockage.

By far the number one reason American’s live abroad is for work, career, and business opportunity. Therefore, it stands to reason that a common question U.S. Expats ask about FATCA is:

My consulting business is not connected to the USA, how am I effected?

The issue here is that the U.S. does not provide tax deferral on overseas firms dealing in capital. FATCA does not define the difference between trading businesses and firms dealing in capital. Your business is effectively connected to the USA. There is a misunderstanding as to what type of businesses the U.S. provides tax deferral overseas. Is it a trading company or a company dealing in capital overseas?  The fact is that the U.S. provides tax deferral on overseas trading businesses but not on overseas firms dealing in capital.

U.S. Expat FATCA Solution:

Your foreign company needs a legal basis for a tax deferral structure that is not effectively connected to the USA and is a foreign resident. The Foreign Account Tax Compliance Act (FATCA) does not define the difference between trade and capital. There is so much confusion over the fundamental question of ownership in any event where you have a company effectively connected to a U.S. person. You definitely have a reporting obligation when you are a director, or when you effectively control, an overseas company. Whether or not that leads to a further reporting or further inquiry, whether it is under the tax code or FATCA, or what have you, is really beside the point because there are three issues:

  • Establishing a foreign company does not determine residency
  • Where the company is controlled determines the residency
  • Determining residency depends on who is the owner with the command and control

You need a foreign company to collect commission, receive your contract buyout and to collect any payments in order to get paid gross rather than suffering current tax. You need a Tax Department Certificate to the effect that your foreign company has residency in that foreign country for Double Taxation

U.S. Expat FATCA Solution:

You obtain foreign company residency when your company is owned by your foreign resident registered IRC 402(b). Therefore, our first step is to organize your business ownership, command and control, to be a tax recognized resident in a Hong Kong 402(b) foreign retirement plan. [box type=”note” style=”rounded” border=”full”]Learn more – Click Here to get the Free White Paper[/box]


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