Dubai: The looming implementation of the Foreign Account Tax Compliance Act (FATCA), a law designed as a tool to counteract tax evasion, is prompting a growing number US expatriates to look for tax efficient investment options.
An estimated 7.2 million American expatriates and the 13 million green-card holders are likely to consider an overseas pension as part of their tax planning, according to deVere Group, which has more than 80,000 mainly expatriate clients worldwide.
With the FATCA roll-out just about 12 weeks away, a number of US expatriates are looking for FATCA-compliant solutions to meet the US tax regulations.
FATCA’s major challenges for US expats include being rejected from non US financial institutions, such as banks in their country of residence, and the complicated and costly new reporting requirements for anyone with assets of more than $50,000 (Dh183,500).
FATCA has resulted in additional reporting requirements for all US citizens overseas. It will also mean substantial compliance obligations for all non-US financial institutions worldwide. Under the new regulations, all foreign financial institutions are required to register with the Internal Revenue Service (IRS) by June this year. Most of the banks operating in the UAE have already started to comply with the IRS demands.
A recent global survey had shown a large number of American expatriates were willing to give up their US citizenship in protest against the new regulations. “FATCA’s onerous, expensive and privacy-infringing rules are, according to a recent deVere survey, the trigger for many more Americans over the last two years to take the usually difficult decision to officially sever their US ties by giving up their US passports,” said Nigel Greene Vere Group’s founder and chief executive.
While giving up one’s citizenship is a drastic step to protest against a tax laws, analysts say, increasingly US expats are looking at less painful, ways to mitigate FATCA’s adverse effects as the deadline nears.
One such FATCA solution for the US taxpayer with assets abroad is to create a tax-efficient, supplementary overseas pension contract. “Amongst other benefits, the pension schemes in this instance will allow a qualifying US expat to make annual contributions to a pension fund over and above $51,000 — which is not possible within the current US tax-approved regime,” said Reece Fallaize, deVere Group’s senior technical adviser.
Financial planners say US expatriates impacted by the new tax rules should plan ahead and use all available bona fide options to mitigate FATCA’s burden.