• An FBAR – An FBAR (Foreign bank account report) (https://bsaefiling1.fincen.treas.gov/lc/content/xfaforms/profiles/htmldefault.html) is a separate filing requirement for US expats which needs to be filed online each year with FinCEN (the Financial Crimes Authority) when the aggregate of the individual’s highest balances of their non-US accounts in any given day in a calendar year is over $10,000. The deadline for filing the FBAR is October 15^th. The US-designed this to crack down on money laundering and other financial crimes. Failure to disclose these assets could lead to fines of $100,000 or 50% of the undisclosed sum – whichever is higher!
• Form 1040 and Form 2555 – The foreign earned income exclusion lets US expats exclude up to a maximum of around $105,000 of the earned income from US taxation, however, passive income such as pensions, rent and dividends cannot be excluded. Fortunately, the US has 60 double taxation agreements across the world. Expats who pay foreign income tax at a higher rate than the US rate are often better off claiming the Foreign Tax Credit through the filing of Form 2555 (https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-forms-to-file) with Form 1040 https://www.irs.gov/forms-pubs/about-form-1040

 

Failure to comply and report can lead to serious fines, starting at $10,000 for an unintentionally missed filing or error per year. Therefore, it is imperative for US expats to get their finances in order to avoid these potential fines.

Further complications

All Non-US financial institutions need to reveal the identities of US account holders or impose a 30% withholding tax. The costs of complying with FATCA are estimated to be about $200m for each foreign institution, meaning most non-US financial institutions no longer accept US connected clients. In addition, many US individuals have had their American brokerage accounts closed since moving overseas. In 2020 large institutions such as Charles Schwab and Wells Fargo closed all brokerage accounts that had a foreign address. Furthermore, purchasing foreign mutual funds or other pooled investment products is classed as a “passive foreign investment company (PFIC) and are taxed punitively at the highest marginal rate of tax – 39.6% making these options unattractive