What is FATCA?
FATCA is Foreign Account Tax Compliance Act, which is the US Government’s mandate that US people and organizations have to tell the IRS about their foreign assets. It’s enacted in collusion with foreign banks and trusts, so it means you can’t shelter funds from taxation simply by carrying gold bullion to a Swiss bank. The Swiss are obliged to tell the US Government which is kind of crazy if you think about it.
What happens if the US is at war with a nation and you have a store of wealth there? FATCA requires you to tell the US about your funds, though it seems unlikely that the beleaguered nation would offer up the data gladly to corroborate or deny your claims.
Why don’t some US people like FATCA?
US people, regardless of where they live and earn their money have to pay US taxes on their income. So someone who was born in the US and then moves to China when she is four years old still pays US taxes. While residents of the US probably enjoy the stream of taxation income coming in from overseas, people who don’t enjoy the benefits of residency probably don’t. After all, if I’m a US citizen living in Russia, then would I really want to pay taxes to pay for the American War Machine? Probably not.
You get a deduction on your US income taxes based on taxes you have paid for the locality in which you reside. Which is all well and good except when the tax codes of the US and your country of residence don’t line up. For example if you sell a home in the UK, your capital gains allowance would be different there than in the US, and you might have to pay capital gains tax in the US.
Regardless, the US imposes stiff penalties if you don’t file your FBAR on time (seriously, I couldn’t make up a form that sounds more like Fubar if I tried), and there are international agreements for foreign organizations to hand over financial records of US citizens. If your foreign assets add up to over $50,000 (subject to status) then you also have to file a Form 8938.