By Kimberly Wied
Meant to stimulate growth in the floundering US economy, the HIRE Act will have an important un-advertised effect for US expats living abroad: they will have significant obstacles to opening bank accounts outside of the USA.
Signed into law by President Obama on March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act’s stated purpose is to provide incentives and payroll tax breaks for employers to hire and retain unemployed workers, as well as placing reporting burdens to the IRS on foreign banks.
How does the US HIRE Act affect Expats?
Basically, under the HIRE Act, which is due to take effect on January 1,2013, Americans living abroad will face more financial scrutiny than ever before in US history. Although the Act was originally intended to crack down on wealthy Americans evading US taxes through the use of offshore bank accounts, the unintended victims of the Act are the working class US expats merely trying to manage their modest incomes.
A subsection of the HIRE Act includes provisions that will require foreign financial institutions, investment funds, trusts, family offices and other types of investment structures to report information about its US account holders each year. If the financial institution fails to do so, a 30% withholding tax will be applied to all US investments, including any payments they receive from a US payor. This 30% should then be remitted to the IRS as tax. This will apply to any institution that does not sign an international tax agreement with the United States’ IRS to conform to specified reporting standards for their US account holders.
The provisions will also require any individuals with more than $50,000 in foreign assets to report this information on their US tax returns. Failure to comply with this procedure could entail a fine of up to $50,000. The practical effect of the HIRE Act is that foreign banks are increasingly choosing not to do business with US citizens.
What this could mean for expats is:
- Some banks may reach the conclusion that dealing with US citizens has become overly cumbersome, and close your account or refuse to allow you to open an account. This could well be true for a financial institution that you may have used for years and built loyalty with; if the price is too high, the bank could kick your account to the curb.
- The IRS will soon have a very real system in place to enable it to track down Americans living overseas. If you use a bank in a foreign country, this law will require that bank to report your status to the IRS in America. If your bank (in a foreign country) fails to do so and fails to comply with the HIRE Act, the US will serve up its 30% penalty fee.
If you are an American expat living abroad, now might be the time to get your taxes in order.
Financial experts seem to be in agreement that despite the main intention of this law to open more employment opportunities to US citizens, it will lead to substantial capital flight from the United States within the next year.
Another unintended, negative consequence of the HIRE Act will be to encourage foreign financial institutions and foreign private-sector interests to cease using the US dollar to conduct their business transactions. If some countries do not wish to enter into information-sharing agreements with the United States, then they will likely try to evade this steep fee by looking for business elsewhere.
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Please note that this legislation also has a great impact on a QROPS pension transfer for a USA resident.
More info here:
http://www.pension-transfers-qrops.com/usa.html
Please to be explaining how the IRS levies a tax on foreign banks? If the ex-pat is banking in a foreign country, and the funds never pass through a US bank, how does the IRS get its grubby hands on that 30%?
I was born in the states, tho i wouldnt and dont really call my self a american, i call myself a north american. i have been living in canada the majority of my adult life and as such have paid taxes to the province and country i reside in. i WILL NOT pay a tax to the states. No taxation without representation …. it is in the constitution i believe. so (EDITED) you obama, (EDITED) you bush, (EDITED) each and every state and every politician in each little house you built from cards. you can (EDITED) and (EDITED), you will not get 1 god dam bloody cent from me. If it takes me renouncing my american citizenship, so be it, america is (EDITED) anyways. anyone who doesnt see that is blind.
Hello joshy neurotic,
We appreciate the fervor of your commentary – debate is what Thai Law Forum is all about. That said, while we don’t typically alter comments, we felt that a little bit of little bit of editing was needed… We try to keep things relatively clean around here.
Thanks,
Thai Law Forum Staff
hey thanks to share this types of information via blog. Nice to read this blog and specially above post and i really got some tips from there…i am looking for your next post related this…thanks
America evil emprie called the IRS which has consumed everything and everyone’s life on earth. Used all its citizens to pay for the unwanted. These idiots we hire to run our country which half of them don’t even pay their share of taxes want to go abroad and chase people outside the boarders for money USA has no rights too.
This too much they can keep their citizen ship. No one wants it!!!!
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