FATCA: US Expat Taxation
FATCA stands for The Foreign Account Tax Compliance Act. This is relatively recent act that has been introduced by IRS for the US citizens residing in foreign countries. This act requires all the expats to declare the market value of the assets owned by them in the foreign country while filing the income tax return. Form 8938 needs to be filled for complying with this act. Though this new act has made filing taxes even more cumbersome for the expats but it is mandatory so it needs to be done. Let us try and understand how this FATCA works.
The FATCA needs to be filled every year along with the income tax return. The due date for filing is same as your due date for return. If you have got an extension on your tax filing then that extension applied to the FATCA also. The FATCA form requires you to calculate the market value of your assets during that financial year, then convert it to US dollar using the average conversion rate for the year and then declare it.
Even if you have filed the FBAR (Report of Foreign Bank and Financial Accounts) for all your foreign accounts and assets, you still need to file the FATCA. Both FATCA and FBAR are mandatory. The penalty for not filing starts at $10,000 and keeps getting incremented by $10,000 for every month of further delay. If the value of assets declared by you is less than then actual market value then again a penalty of 40% can be levied. Criminal charges can also be pressed in such cases.
The FATCA required certain institutions of the foreign countries like banks, corporate, brokers, dealers etc. to provide them information about the assets held by US citizens working for them like bank accounts, foreign entities etc.
The assets that need to be declared when filing FATCA include foreign bank accounts, foreign stocks not held in bank accounts, foreign mutual funds, life insurance or cash value annuity issued by foreign country, foreign hedge funds or equity funds amongst others. Personal property, jewelry or real estate as assets, are exempted from declaration.