Amongst American expats, it is common to have heard about the US tax compliance law, FATCA. However, you may not have considered or be aware of the impact this tax law has on you, as a US expat. The FATCA legislation forces foreign financial institutions to report assets that are held by Americans abroad directly to the Internal Revenue Service (IRS).
What is FATCA?
FATCA stands for ‘Foreign Account Tax Compliance Act’, passed back in 2010. This act brings with it a complex set of rules that aim to increase tax compliance by Americans that have financial assets held outside of the US. FATCA involves additional self-reporting requirements and more severe penalties for a failure to comply.
FATCA was written into law with the aim to eliminate tax evasion by American individuals and businesses that are investing, operating, and earning taxable income abroad. Failure to disclose an offshore account to the IRS is illegal as the U.S. taxes all income and assets of its citizens on a global scale.
A consequence of this legislation is that all foreign financial institutions must now record which of their Clients are determined “US Persons” and report information on their held accounts directly to the IRS. In addition, many financial institutions now refuse to service US expats at all.
US expats in Switzerland need to be aware that it is important to pay close attention to the self-reporting requirements on any foreign financial assets.
Your financial institutions in Switzerland are required to report on “US Persons.” This is a broad group that includes US citizens, residents, green card holders, and controlled trusts. FACTA rules defined by the IRS include extensive criteria that banks have to use to screen all of their clients to determine which ones appear to be “US Persons”.