Trump May Roll Back FATCA
The Republicans and Donald Trump have pledged to roll back FATCA in 2017. Both the Republicans and Trump have been saying for over a year that they’ll eliminate FATCA and other measures that harm international business.
FATCA has been under fire from all manner of business groups, entrepreneurs, and banks. The best description I’ve read is from the New American: “The Obama-era Foreign Account Tax Compliance Act (FATCA) horror show may be coming to an end. With President Donald Trump in the White House and Republicans in charge of both houses of Congress, critics and victims of the scheme dubbed the “the worst law most Americans have never heard of,” are launching a fresh push for repeal.”
The Foreign Account Tax Compliance Act (FATCA) requires foreign banks and brokerages to report on the assets held by their U.S. persons or be subject to withholding on US transfers.
The penalty for failure to comply, withholding, would essentially put the foreign bank or brokerage out of business. They would be unable to receive transfers from the United States or any bank with a branch in the United States. Also, they’d lose their ability to transact in USD because no correspondent bank would take on a non-compliant foreign bank.
The practical effect of FATCA has been to close 95% of the foreign banks to US customers. If you’re living, working, or doing business abroad, it’s nearly impossible to open an offshore bank account.
And the same goes for small to midsize businesses that need an international bank account. Few banks will accept an account from a US company with lots of inflows and outflows and a relatively small balance.
If you have $2.5 million or more and want to park that in Switzerland, you won’t have any problem opening an offshore bank account. If you have a business with a lot of transfers and a low balance, no one will take you.
The reason for this is obvious: FATCA
It costs foreign banks millions of dollars to set up new FATCA compliant reporting systems. If you don’t want to spend the money, the easy solution is to refuse to do business with US persons and companies. In that case, you don’t need to spend on tech, hire auditors and compliance personnel, and have no risk of being placed on the IRS’s “naughty list.”
If a foreign bank does spend on FATCA, they’ll only want to do business with zero risk high-profit clients. A small private company with lots of transactions in and out is high risk. A client who parks their money at the bank, and who can pass a very rigorous background check, is a high-profit account.
In this void have appeared a few very small offshore banks. They’ve built up teams experienced in FATCA compliance and will accept any and all US accounts. Because of the high cost of operation and reporting, they usually charge a setup fee of up to $500 and a monthly account fee.
I’m often asked by readers “which are the best low-cost offshore banks?” I still get a chuckle from this question. There are no low-cost offshore options unless and until FATCA is repealed.
President Trump has repeatedly promised to repeal FATCA. He seems to understand that it’s wrong to turn foreign bankers in to unpaid IRS agents. More importantly, FATCA has frozen small and medium-sized business out of most foreign transactions. The inability to open accounts, transact efficiently, and trade with international partners, has had a chilling effect on US business abroad.
And FATCA has a limited effect on US tax receivables. US persons are required to pay US tax on their worldwide income. New reporting requirements, such as the FBAR, have placed a heavy burden on US citizens abroad. We’re already forced to report most of our accounts, investments and transactions.
FATCA has created duplicate reporting. Both the US person and the bank are required to report to the US IRS. Considering how much damage FATCA has done to legitimate entrepreneurs, it’s time to eliminate this overreach and rely on US persons to report their transactions.
I hope you’ve found this article on Trump’s possible repeal of FATCA to be interesting. For more information on structuring an offshore business, and keeping that company in compliance in an ever-changing landscape, please contact me HERE.
If you have an unreported international company or offshore bank account, now is the time to get it into compliance. We can help you to file your US return and negotiate the best settlement available under your particular facts and circumstances.
I’ve included some great articles for you to read, enjoy!
A Look at Belize’s Banking Compliance in the Wake of the Panama Papers and FATCA
Tax Horror Stories—the IRS Creeps Up on Senior Citizen Living in Canada
9 Reasons You Need An Offshore Bank Account
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