Sidney
10-20-2011, 11:44 AM
United States obligates foreign banks to sign agreement with IRS (http://www.usexpatcostarica.com/2011/10/irs-foreign-banks/)
October 18, 2011 | expatcostarica (http://www.usexpatcostarica.com/author/admin/) | Comments (2) (http://www.usexpatcostarica.com/2011/10/irs-foreign-banks/#idc-container)
4 (http://www.usexpatcostarica.com/2011/10/irs-foreign-banks/#)
http://www.usexpatcostarica.com/wp-content/uploads/2011/10/bcr-500x348.jpgBanco de Costa Rica to Partner with IRS
Foreign banks worldwide that fail to sign an agreement with the Internal Revenue Service by June 30, 2013 will be subject to stiff sanctions. Expats also face new requirements when filing tax returns if their foreign assets exceed $50,000.
A recent article in La Nacion quotes Franco Naranjo (http://www.nacion.com/2011-10-18/Economia/ley-de-ee--uu--obligara-a-banca-local-a-reportar-saldos--de-inversionistas-.aspx), President of the Costa Rican Banking Association and makes it clear that the Costa Rican banking industry is taking the new rules seriously. The agreement requires the foreign bank to collect tax identification numbers from United States citizens and send the IRS regular updates on their banking activities and account balances.
Corporations with a ten percent or greater interest on the part of United States citizens are also subject to the same requirements. The law also has detailed rules for foreign trusts, and may eventually apply to insurance policies.
Corporate ownership in Costa Rica used to be anonymous, however this has largely gone away since local laws required banks to collect information about beneficial ownership. The consequence is there will be little possible dodge to the new law apart from the huge risk of completely transferring control of accounts to a non-United States citizen.
Dual citizenship in Costa Rica is also likely to be of no help. The law uses the definition (http://en.wikipedia.org/wiki/United_States_person) of a “United States person” in determining who is subject to its requirements. Anyone who holds United States citizenship or legal residency in the United States would be covered by this definition.
http://www.usexpatcostarica.com/wp-content/uploads/2011/10/600px-US-InternalRevenueService-Seal.svg_-240x240.png
An Offer That Foreign Banks Can’t Refuse
Banks that decline the agreement will be subject to 30 percent withholding on all their financial transactions coming from the United States. Banks that sign the agreement are also required to apply the penalties in local transactions in their own country against banks that fail to join the IRS cartel. Obviously, banks in small country like Costa Rica can not afford to stay out of the IRS agreement.
The legal system and courts in Costa Rica will also be powerless to prevent enforcement. Banks that do not comply even if following local laws will simply find themselves out in the cold with their funds on account with U.S. banks being withheld and redirected to the IRS. The rules allow the IRS to go after all the foreign bank’s funds and not just the amounts that may be attributable to United States persons.
The law called the Foreign Accounts Tax Compliance Act (http://www.irs.gov/businesses/corporations/article/0,,id=236667,00.html) when it was originally debated by Congress was slipped into the text of the HIRE act and went info effect on March 18, 2010 when it was signed by President Obama. The goal of the Hire Act was to stimulate job creation for Americas, but Congress thought it would be wise to also step up tax collection on United States citizens living abroad.
New Tax Form is IRS Road Map to All Expat Foreign Assets
The new tax form for expats is being called Form 8938 (http://www.irs.gov/pub/irs-dft/f8938--dft.pdf), and is available in draft format for review on the IRS website. As an informational filing the form will not affect the tax calculation, and is really a road map to all the foreign assets that belong to a United States citizen. The current version requires adding up the value of assets and converting their value based on an exchange rate that also has to be described on the form. A disclosure has to be made of the various corporation names and trusts that hold the assets. A summary is required of assets that figure in the tax calculation for the current year.
It is important to understand that once the specific rules are sorted out the tax form will not be optional. Expats who fail to file it with their individual tax return will have committed a federal offense subject to prosecution and imprisonment. History has shown that Costa Rica is happy to extradite non-Costa Rican citizens who are wanted for federal offenses in the United States even when the crimes are connected to activities on Costa Rican soil. Expats with pensions and assets in the United States would also be taking a huge risk in not following the new rules.
In the past some expats have reaped substantial financial rewards in the Costa Rican real estate market. Local banks were used to handle the transactions, and its doubtful that all involved paid taxes on capital gains. Those who dodged the system and managed to hold onto their assets while staying abroad will now face some new challenges.
Obviously questions will be asked when expats disclose substantial foreign holdings and have not paid taxes in previous years. Failing to disclose is not much of an option now that the United States government has found a big stick to intimidate foreign banks into turning over information.
October 18, 2011 | expatcostarica (http://www.usexpatcostarica.com/author/admin/) | Comments (2) (http://www.usexpatcostarica.com/2011/10/irs-foreign-banks/#idc-container)
4 (http://www.usexpatcostarica.com/2011/10/irs-foreign-banks/#)
http://www.usexpatcostarica.com/wp-content/uploads/2011/10/bcr-500x348.jpgBanco de Costa Rica to Partner with IRS
Foreign banks worldwide that fail to sign an agreement with the Internal Revenue Service by June 30, 2013 will be subject to stiff sanctions. Expats also face new requirements when filing tax returns if their foreign assets exceed $50,000.
A recent article in La Nacion quotes Franco Naranjo (http://www.nacion.com/2011-10-18/Economia/ley-de-ee--uu--obligara-a-banca-local-a-reportar-saldos--de-inversionistas-.aspx), President of the Costa Rican Banking Association and makes it clear that the Costa Rican banking industry is taking the new rules seriously. The agreement requires the foreign bank to collect tax identification numbers from United States citizens and send the IRS regular updates on their banking activities and account balances.
Corporations with a ten percent or greater interest on the part of United States citizens are also subject to the same requirements. The law also has detailed rules for foreign trusts, and may eventually apply to insurance policies.
Corporate ownership in Costa Rica used to be anonymous, however this has largely gone away since local laws required banks to collect information about beneficial ownership. The consequence is there will be little possible dodge to the new law apart from the huge risk of completely transferring control of accounts to a non-United States citizen.
Dual citizenship in Costa Rica is also likely to be of no help. The law uses the definition (http://en.wikipedia.org/wiki/United_States_person) of a “United States person” in determining who is subject to its requirements. Anyone who holds United States citizenship or legal residency in the United States would be covered by this definition.
http://www.usexpatcostarica.com/wp-content/uploads/2011/10/600px-US-InternalRevenueService-Seal.svg_-240x240.png
An Offer That Foreign Banks Can’t Refuse
Banks that decline the agreement will be subject to 30 percent withholding on all their financial transactions coming from the United States. Banks that sign the agreement are also required to apply the penalties in local transactions in their own country against banks that fail to join the IRS cartel. Obviously, banks in small country like Costa Rica can not afford to stay out of the IRS agreement.
The legal system and courts in Costa Rica will also be powerless to prevent enforcement. Banks that do not comply even if following local laws will simply find themselves out in the cold with their funds on account with U.S. banks being withheld and redirected to the IRS. The rules allow the IRS to go after all the foreign bank’s funds and not just the amounts that may be attributable to United States persons.
The law called the Foreign Accounts Tax Compliance Act (http://www.irs.gov/businesses/corporations/article/0,,id=236667,00.html) when it was originally debated by Congress was slipped into the text of the HIRE act and went info effect on March 18, 2010 when it was signed by President Obama. The goal of the Hire Act was to stimulate job creation for Americas, but Congress thought it would be wise to also step up tax collection on United States citizens living abroad.
New Tax Form is IRS Road Map to All Expat Foreign Assets
The new tax form for expats is being called Form 8938 (http://www.irs.gov/pub/irs-dft/f8938--dft.pdf), and is available in draft format for review on the IRS website. As an informational filing the form will not affect the tax calculation, and is really a road map to all the foreign assets that belong to a United States citizen. The current version requires adding up the value of assets and converting their value based on an exchange rate that also has to be described on the form. A disclosure has to be made of the various corporation names and trusts that hold the assets. A summary is required of assets that figure in the tax calculation for the current year.
It is important to understand that once the specific rules are sorted out the tax form will not be optional. Expats who fail to file it with their individual tax return will have committed a federal offense subject to prosecution and imprisonment. History has shown that Costa Rica is happy to extradite non-Costa Rican citizens who are wanted for federal offenses in the United States even when the crimes are connected to activities on Costa Rican soil. Expats with pensions and assets in the United States would also be taking a huge risk in not following the new rules.
In the past some expats have reaped substantial financial rewards in the Costa Rican real estate market. Local banks were used to handle the transactions, and its doubtful that all involved paid taxes on capital gains. Those who dodged the system and managed to hold onto their assets while staying abroad will now face some new challenges.
Obviously questions will be asked when expats disclose substantial foreign holdings and have not paid taxes in previous years. Failing to disclose is not much of an option now that the United States government has found a big stick to intimidate foreign banks into turning over information.