Offshore Banking and Expatriate Planning

Offshore Banking and Expatriate Planning

Offshore Banking and Expatriate Planning

Offshore Banking and Expatriate Planning: With the crackdown of Swiss Bank Accounts and offshore banking in general, the process of opening a foreign bank account in general has become much more complicated for US persons. Especially when it is a US Citizen (as opposed to a Long-Term Lawful Permanent Resident) who is expatriating from the United States — offshore banking issues can become a significant hurdle to overcome.  Many Foreign Financial Institutions are not welcoming to US persons opening accounts at their bank. It’s nothing personal (at least usually it’s not) but it’s more about the fact that Foreign Financial Institutions with US customers have to comply with FATCA (Foreign Account Tax Compliance Act). For expatriates seeking to open foreign accounts — and in order to avoid the issue of offshore banking as a US person — it is often better to wait until the expatriation has occurred, and the former US person has a given up their U.S. passport*

*Knowingly using a second passport while a person is still a US citizen in order to avoid reporting as a US person can be considered tax fraud.

Wait until a Second Passport is Available

When a person is considered a US citizen, many foreign financial institutions will not do business with them.

The easiest way to circumvent this rule is to not be a US citizen. A US Citizen ceases to be a US person after they expatriate. They receive proof in the form of a   DS-4083, which shows that the That the taxpayer is no longer a US citizen.  The reason this is important, is because many times when a foreign institution suspects a new customer is a US Person, they will ask where the taxpayer was born, and once the taxpayer says the United States — it is presumed they are US citizen.

Therefore, waiting until expatriation has occurred along with Loss of Nationality is helpful.

Non-FATCA Country & Offshore Banking

Depending on which country the former US citizen wants to do their offshore banking will impact whether FATCA is at issue. A non-FATCA country has no US FATCA reporting requirement, but more than 110 countries are considered “FATCA compliant countries”

When a person is no longer a US citizen, then FATCA should not be an issue. This goes back to the first point, in that the person should wait until they have expatriated before they open foreign accounts.

If a person opens the account before they have expatriated — even if they update the institution that they have expatriated  — there is no knowing whether the bank will update there system and most banks wants to stay out of the cross-hairs of the IRS

In other words, one of the main reasons people expatriate is to escape the clutches of the US tax and foreign asset reporting system, so to have a foreign institution reporting an Expatriate’s account information after that person has expatriated is only asking for trouble from the US Government.

Exchange US Dollars to Local (Foreign) Currency First

Oftentimes, when opening a bank account in a Foreign Financial Institution, the path of least resistance is to open the account in local currency. That does not mean you cannot have an account that has multiple currencies in it — or sub-accounts with separate accounts for different currencies (which is common) — but opening a foreign account as a former US citizen with US dollars could lead to more questions, and cause a delay or rejection from the institution.

No Need to Mention U.S. Status when Offshore Banking

After a US citizen expatriates, they are usually excited that they are no longer a US Person for tax purposes. The problem is that if the Foreign Financial Institution banker hears you mention the term “US Citizen” and they don’t fully understand what the term “expatriation” means — but learns you were born in the United States (assuming that it’s true vs dual-citizen) — it could lead to unnecessary complications.

In other words, there is no need to volunteer the fact that you used to be a US citizen unless it comes up in conversation by the person working at the institution.

A Smooth Transition to Offshore Banking

In conclusion, after expatriation is complete, the setting up an offshore bank account is a very important aspect of moving forward as a non US person. There are various precautions to consider before doing so, which can make the process more seamless with less headaches.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance.

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