Working and Business > Income Taxes - Expat Home Countries

US Taxes on American Expats-FATCA

US Taxes on American Expat...

The most important provisions of FATCA (Foreign Account Tax Compliance Act) took effect on 01 January 2013. The objective of this act is to tax income of US citizens from non-US financial services providers. 

FATCA requires foreign financial institutions, such as banks, investment companies and securities services providers, to report all American clients to the IRS or be severely penalized with high withholding taxes. If the information reported is not 100% accurate and complete, the fund manager will still be faced with a penalty. The penalty is solely applied to the manager, not the American client, regardless of the manager’s nationality. As you see, a non-cooperative American expat client may be more trouble than s/he is worth.

“The law requires that foreign financial institutions register with the U.S. Internal Revenue Service by 30 June 2013. If they do not register, they will then be regarded as “non-participating”. In that case a 30% withholding tax will be applied to all their income on American assets from 2014 as well as to the proceeds from the sales of these assets from 2015.” Most fund managers will feel obligated to register for a number of reasons, not least of which is that American bond and equity markets are the largest in the world. 

For U.S. citizens who are considered by the IRS to be foreign residents for the entire tax year or who meet the physical presence test for living in a foreign county, the new limits are:
Single: Aggregate foreign assets of USD 200,000 on the last day of the year or USD 300,000 at any time during the year.
Married Filing Jointly: Aggregate foreign assets of USD 400,000 on the last day of the year or USD 600,000 at any time during the year.
For more details on who needs to file, what constitutes foreign assets, and other details, check out the IRS article, "Do I need to file Form 8938, 'Statement of Specified Foreign Financial Assets?'"

The penalty for failing to file Form 8938 if your fall into the above categories is $10,000, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed and special statute of limitation rules apply.

Form 8938 is separate from the FBAR (Foreign Band and Financial Accounts) form and its requirements. The FBAR (90-22.1) is filed with the US treasury while Form 8938 is filed with the IRS. However, if you are required to file Form 8938, your assets will most likely fall under the FBAR filing requirements (if the majority of your assets are financial) accounts.

Note: For accounting firm that provide tax services for expats, see the K4E Directory.

K4E Editor: tries to ensure that the information we provide is accurate and complete, so should you notice any errors or omissions in the content above please contact us at

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Last Updated on 2013-04-07

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