FATCA. It’s not only for FAT CATS. Perhaps it should be, but the truth is that it is something that will affect every expat in some way.
FATCA is the Foreign Account Tax Compliance Act. As designed, it is to require tax reporting for any American who has at least $50,000 in foreign bank accounts. So, I know what you are thinking:
It won’t affect me, then, because I sure don’t have $50,000 in any foreign bank account!
But, if you are an expat and have only $1,000 or even $100 in a foreign bank account it might just hit you! How?
Well, if you are living in a different country, banks in that country may decide to close down all accounts belonging to Americans because the administration of the accounts is just too much hassle, even if the accounts total less than $50,000. In fact, even non-American expats could be affected, because foreign banks may see the hassles involved in handling American clients and they may just decide to stop doing business with all foreigners. That would impact every single expat no matter what country he is from. Frankly, it’s just not a good situation.
The truth is, FATCA, as it was originally written, it really was not put in place to go after “regular” expats. When I say “regular” expats I mean middle class expats. The intention was to go after rich people, even non-expats wealthy people, who were sending their money overseas to avoid paying US taxes. As we all know, over the years people of means could shelter their money in Swiss Bank Accounts, offshore in the Cayman Islands and other offshore locations that catered to helping the wealthy hide their money away and avoid the need to pay US taxes on their earnings, whether it be from Interest on those accounts or investments that were made overseas using those foreign bank accounts for the investment money.
Targeting the Middle Class
However, as things have developed, the unintentional target of FATCA has become the Middle Class Expat. Even though it was unintentional, the middle class expat is now every bit as much of a target at the fat-cat American who is socking his money away in foreign accounts to hide it away from the tax collector. This is not what was intended, but it is the way things have played out. The way it has actually played out is that the Middle Class expat is far more targeted than those fat cat rich people who try to hide their money overseas. Why? Well, nobody knows for sure, but I would venture a guess or two.
- Those middle class expats comprise a much larger group of individuals.
- Even though the middle class don’t have as much money as the rich do, when you take the huge numbers of middle class as compared to a relatively few rich, the amount of potential windfall to the US Government is much larger coming from those middle class expats.
- Enforcing it in a way that impacts the largest number of people gathers more information for the US Government to use in keeping track of its people. By forcing the foreign banking institutions to report the information it helps build a large database about American expats.
I could be wrong about these things, of course. But, that is just how I see it. I feel that the actions of the US Government over the past decade or two would tend to point toward the type of information gathering that I am suggesting. I feel it is likely that these reasons are a big part of why the middle class expat is being targeted.
If you search the net for even 5 minutes you can find dozens of articles about how FATCA enforcement is a “nightmare” or an “intrusion” for expats. It would seem that the popular opinion in the media is that my feelings on this are correct.
In coming weeks, I will be looking at various other aspects of FATCA and how it is affecting and will continue to affect us expats in our daily lives. So, if FATCA is of interest to you, and if you are an expat it should be of interest… then keep checking back here for updates!