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- Author
- Cannon Financial Institute
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- Published
- February 5, 2020
Articles
Wealthy Clients Who Have Financial Accounts in Foreign Countries: What You Need to Know
Jason Bourne, James Bond, and every other spy worth their salt have foreign bank accounts. But you don’t need to be a secret agent to have financial assets overseas. Regular people do it as well, but there is a lot of paperwork involved.
The U.S. is one of the few countries in the world that taxes people by citizenship and not residency. This can obviously lead to double taxation for UHNW/HNW clients. As an example, American corporations have made vast investments around the globe. This has created a class of highly compensated American executives who live abroad or have lived abroad and have accumulated assets in several countries. The list can go on and on.
What You Need to Know to Help Your Clients
Under the Bank Secrecy Act, your clients must annually report to the Internal Revenue Service any type of foreign financial account they may have including:
- bank accounts
- brokerage accounts
- mutual funds
You report these accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114. [1]
What does the IRS want to know? Just about everything including:
- Name on the account
- Account number
- Name and address of the foreign bank
- Type of account
- Maximum value during the year
What Do You Need to Know To Mention to Your Clients?
Your HNW/UHNW clients must file a FBAR every year. Of course, like every rule in the tax code, there are exceptions to what has to be reported, but your wealthy clients will need the advice of tax counsel. At the same time, this can be a good segue into a description of the international tax services your firm offers. Be aware that permanent green card holders who have permanent residency status in the U.S. are taxed as if they were U.S. citizens.
Who Must File a FBAR?
According to the Internal Revenue Service, “A United States person, including a citizen, resident, corporation, partnership, limited liability company, or trust and estate…” must file a FBAR. The IRS considers any account maintained at a financial institution located outside the U.S. to be a foreign financial account. [1]
What Happens If My Clients Don’t File the Required FBAR?
FinCEN might have some questions for your client. This isn’t the U.S. agency which hands out funds to people whose homes have been destroyed in a natural disaster;that’s FEMA. FinCEN is the Financial Crimes Enforcement Network. [2] Let’s face it, who wants to get a phone call or letter from them?
Foreign Banks Have to Report Your Information to the Government
The U.S. Government doesn’t want people trying to hide money overseas and not pay taxes on those funds. Just to make sure you don’t forget, there is a law known as FACTA which stands for the Foreign Account Tax Compliance Act. This law requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the IRS.
Foreign Income Exemptions and Credits
Just to make this more confusing, qualifying U.S. taxpayers can exempt the first $104,100 (as of 2018) foreign earned income from their U.S. income tax. You can also claim a tax credit for a certain amount of tax imposed on you by a foreign government, and there are various allowances for housing provided to you by your employer.
If you have clients in this position, and they have a lot of money, they needboth tax and legal advice on this branch of taxation. You need to recommend that to them.
Resources:
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Contributing Writer: Subject Matter Expert Charles McCain
