Tax complexity itself is a kind of tax.
-Max Baucus
Hence, we are here to remove this complexity for you.
In this blog, we help you find the right answers for all your FATCA related queries. We will cover all the important questions, from answering what is FATCA to discussing penalties. We have discussed about other tax-related queries in our previous blogs as well. Filing taxes as an expat in New Zealand will seem like a cakewalk with us as we simplify everything related to taxes and provide you suitable packages to file taxes.
Me when I try to understand taxes..
What is FATCA?
In order to decrease tax evasion by US individuals, tax residents, and companies, the US has passed the Foreign Account Tax Compliance Act (FATCA). Regardless of whether they stay in the US or not, US citizens, as well as tax residents, are obligated to declare their global earnings to the Internal Revenue Service (IRS). 2023 tax season is going to start soon and you may need to consult US Tax Pros to be guided about filing US taxes sooner.
To whom does FATCA concern?
A reporting system called FATCA makes sure that US citizens and New Zealand people with funds in the US fulfil their tax requirements. All non-exempt foreign financial institutions, such as New Zealand financial institutions (NZFIs), must register with the IRS. Any US citizens or tax residents with specified overseas financial assets that surpass specific levels must be reported.
This involves foreign financial firms outside the US until the US excludes them from FATCA reporting:
- Banks
- Insurance firms
- Custodial settings
- Hedge financing
- Mutual funds
- Funding for superannuation
- Private equity companies
These financial institutions are obligated to disclose information on the following financial accounts owned by:
- US residents
- US taxpayers
- Specific US entities which are citizens of US
- Various ‘non-participating’ finance companies specific non-US companies that are under the authority of US tax residents or US citizens.
In accordance with the terms of the FATCA Intergovernmental Agreement, New Zealand financial firms must give specific identity as well as financial details about these accounts to Inland Revenue. This information will then be given to the United States in accordance with the double tax agreement (DTA) which New Zealand and the United States have in place. The FATCA IGA also has a reciprocal structure. In accordance with the New Zealand/United States DTA, New Zealand will gather details from the US on the financial accounts New Zealand tax residents have with US financial firms.
There are no fundamental tax rights that are altered by FATCA concerning the residents and citizens of the United States or New Zealand. Additionally, it does not mandate that we serve as the Internal Revenue Service of the United States agent for collecting taxes.
Instead, FATCA is a reporting system to guarantee that US citizens (as well as New Zealanders with funds in the US) fulfill their tax duties.
Your expression when you find out filing taxes is not difficult..
What actions is the government of New Zealand taking related to FATCA?
To make it simpler for New Zealand financial institutions to comply with FATCA rules, the government is now discussing an intergovernmental agreement (IGA) with the US and amending the taxation system.
What will the contract accomplish?
In lieu of sending their FATCA reports directly to the IRS, banks will be able to do so thanks to the IGA by sending them to New Zealand Inland Revenue. Similar deals with the US have been struck by many nations or are currently being negotiated by them.
The New Zealand government is considering amendments to the tax law that would oblige banks and other financial entities to provide details to Inland Revenue, which would also subsequently transfer that information to the IRS, to carry out New Zealand’s duties under the IGA.
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Why does it concern privacy?
According to the Privacy Act, organisations like financial establishments are only permitted to gather and share personal data, including bank account information, in a specific set of situations. In many situations, it would not be able to release the information required for FATCA compliance without legislative authorisation, unless consent had already been given.
What would take place if New Zealand didn’t enact legislation allowing FATCA reporting?
Financial firms in New Zealand would be required to retain 30% of some US income if there were no changes to the law, with some exceptions. Undoubtedly, many different New Zealand individuals would be forced to pay for this financial burden.
The majority of New Zealand banks accept funds from the US. For example, banks frequently use US Treasury bonds to lower their susceptibility to interest rate risk because they play a significant influence in determining global interest rates.
Financial entities and banks in New Zealand might not be able to abide by FATCA without violating the privacy rules pertaining to the gathering and sharing of client information if the country does not enact a law allowing FATCA reporting.
It would be simpler for American citizens as well as green card holders living in New Zealand to avoid fulfilling their duties to pay taxes in the US if New Zealand didn’t participate in IGA negotiations with the US.
According to the US-New Zealand double taxation agreement, a sizable percentage of these tax liabilities can be subtracted from taxes paid in New Zealand. Due to these factors, the Privacy Commissioner has not objected to the FATCA IGA negotiations with the US or the amendment of tax law necessary to implement the IGA.
What do beneficial owners need to know about FATCA?
Under FATCA, beneficial owners are typically referred to as “controlling persons.” All beneficial owners of new entities must go through the regular procedure to register with BNZ as an individual. As they must confirm whether they’re US individual or not, this process gathers the pertinent FATCA information.
Will my FATCA status as an individual influence my entity’s FATCA status?
Any entity accounts that you are accountable for under FATCA are treated as well as reported independently from your personal accounts. The FATCA status of your firm may be impacted by your individual FATCA status, though, if you’re a US Person and the beneficial owner of your firm or entity.
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Is FATCA similar to FBAR?
Similar to FATCA, the Foreign Bank Account Report (FBAR) is intended to catch tax evaders who are using foreign bank accounts to hide their assets. FBAR filing is distinct since it applies to foreign account holdings of $10,000 or more (even if the balance was maintained by an account for just one second)! You must submit FinCEN 114 online by October 15 every year, if it applies. There are no additional assets that need to be disclosed; FBAR is only about bank accounts.
FATCA, however, is more extensive. Your international bank accounts as well as other assets must be declared, but the requirements are significantly stricter. If your assets reach the following amounts, you must file a FATCA report.
- Taxpayers who are single and live abroad: $300,000 at any time during the year, or $200,000 on the final day of the tax year.
- Taxpayers married and residing abroad: On the final day of the tax year, $400,000, and $600,000 at any other time in the year.
- US citizens who are single taxpayers: $75,000 at any time during the year, or $50,000 on the final day of the tax year.
- Taxpayers that are married and reside in the US: $150,000 at any time during the year, or $100,000 on the final day of the tax year.
Is giving up citizenship to evade FATCA a good and practical move or not?
Many Americans are thinking about giving up their citizenship in light of the growing knowledge regarding FATCA’s “intrusive” nature. You would no longer be subject to FATCA reporting requirements if you renounce your US citizenship, but it’s not always that easy.
First of all, renouncing will cost you $2,350. You heard correctly; the cost to turn back your passports is $2,350. Some expats may find this amount to be prohibitive, in which case they will be ‘forced’ to continue paying US taxes as citizens.
Second, it’s possible that you’d be categorised as a “covered expat,” in which case you might have to pay a departure tax.
What are the penalties for not being able to file FATCA?
According to the IRS, penalties for failure to comply with FATCA regulations include a $10,000 per violation fine, a $50,000 extra fine for continuing noncompliance after receiving IRS notification, as well as a 40% penalty on any tax understatement related to assets that were not reported. You should consult US Tax Pros for streamlined tax filing procedures to avoid such penalties in future.
If you were not familiar with the reporting requirements, you have a number of choices for becoming compliant. The Streamlined Filing Compliance Procedures are the foreigners’ preferred choice for filing. Through this IRS initiative, innocent late filers have the chance to catch up without incurring late filing fees. The ability to file under this programme is unrestricted. You only need to declare on your own behalf that you didn’t intentionally or purposefully fail to file.
How would I find out if the US would receive my information?
You have a right to view the personal information that is kept about you by a company, such as a bank. Consult US Tax Pros today if you want to find out if you fit the FATCA requirements established by the United States tax authorities.