Reasons why you would want an Offshore Account
Why open an offshore bank account if you can choose between domestic ones? There are reasons why it makes a lot of sense to choose to complement your domestic accounts with offshore ones.
For example, checking, savings and time deposit accounts based in another nation may apply to the higher interest rates. You will gain a better return on the invested funds when the strategy is to allow the money to stay in those accounts and watch the balances rise over time.
How do you benefit from increased interest income? It makes sense to use offshore accounts if you think of retiring in a nation where the cost of living is lower, and your pension and other retirement funds will allow you to live more comfortably. If you have developed banking or investment accounts in place, you will also find it simpler to buy a home in that offshore area.
Understanding the role of FACTA and how it applies to US Citizens
Where do the reports emerge about the inability of US Citizens to have offshore accounts? One potential source is that what is known as the Foreign Account Tax Compliance Act, better known as FACTA, is misunderstood. When FACTA was passed as part of the Hire Act, some financial analysts argued that prohibiting people from developing offshore accounts was the whole point of the new Act. In fact it was not the point.
What FACTA has developed for citizens is the need to file documents that check the presence of the accounts and make a note of any interest received in certain instances. FACYA does not automatically mean, despite what some say, that every tax is levied.
Monitoring your offshore account balances is the secret to knowing whether you need to file with the IRS. You will need to disclose the operation using Form 114 FBAR or Foreign Bank Account Report if the cumulative amount of your offshore balances meets or exceeds USD 10,000 at any time during the tax year.
Note that, for any amount of time, the accumulated balance does not have to stay above the USD 10,000 figure. If that happens during the tax year on a single day, you may need to file a report. Even so, it doesn’t mean that on those account balances, you’re going to owe any income. In certain instances, the Foreign Tax Credit can cover whatever you may owe, provided that you meet the requirements for earning the credit.
What about offshore investments account? Do they work the same?
For investments accounts, the same general concept applies. If they exceed a certain value, the behaviour needs to be reported to the IRS. This is because certain investments account may be considered foreign grantor accounts, especially those categorised as foreign retirement accounts.
It may be appropriate to file an IRS Form 3520, depending on the type of the account. The proper name of the study is Annual Return to Foreign Trust Disclosing Transactions and Acceptance of such Foreign Gifts. IRS Form 3520-A or the Annual Information Return of Foreign Trust might also need to be registered with the US Owner.
Don’t let you be discouraged from opening offshore accounts by adding another form or two. As the names indicate, the tax forms themselves are not as overwhelming. In addition, the organisations where the funds are based will be pleased to assist you in collecting the data required to properly fill out the forms.
Penalties for failing to file the proper IRS Forms
If you are expected to file any of the above-mentioned forms, ensure that they are correctly completed. You run the risk of being charged a penalty by not filing the forms or omitting required details.
These fines may be as high as 35% of the funds involved, depending on the mistake or omission. You could also have liens from your domestic bank accounts levied on your domestic salary or court-ordered deductions.
Offshore bank accounts and FACTA compliance
There was talk with the passage of FACTA that offshore banks would avoid doing business with people of the US. A few banks have agreed to turn away all new US depositors while advising existing depositors to find their accounts with new homes. In several countries, however, offshore banks have opted to change their reporting and customer service to be completely compliant with FACTA.
As someone who has offshore accounts, what does this mean for you? When tax season rolls around, it means you can have another form or two to fill out. There are processes in place for the offshore bank where your accounts reside to let you know if it is appropriate to file the form. In any other front, you should expect the same support standard.
Should you open an offshore bank account?
US Citizens continue to enjoy the advantages of legitimately opening offshore bank accounts. Offshore accounts remain a great choice if you are looking for ways to expand your financial portfolio. Consider this as one more way in the years to come to create wealth and enjoy more stability.
We are pleased to answer your questions and build accounts that eventually provide the financial stability that you want.
