Pros and Cons of Having Multiple Foreign Accounts Worldwide

Pros and Cons of Having Multiple Foreign Accounts Worldwide

Pros and Cons of Having Multiple Foreign Accounts Worldwide

For some taxpayers who are U.S. citizens/permanent residents but have investments abroad, like to travel overseas, or conduct business in various foreign countries, having multiple foreign accounts can be a great benefit. In general, it is easier to conduct business in local currency, and having local currency can reduce pesky foreign currency exchanges. Likewise, for taxpayers who like to invest in foreign stock exchanges, having a local currency account that they can easily access to make trades is also a benefit. While there are benefits to having multiple foreign accounts, there are also detriments and reporting requirements that the taxpayer must consider. Let’s take a look at some of the pros and cons of having multiple foreign accounts.

Pros of Having Multiple Foreign Accounts

Let’s start out by looking at some of the pros and benefits of having multiple foreign accounts:

Different Currencies for Businesses Across the Globe

For businesses that operate in foreign countries, it is generally best to be able to have local currency in order to operate. Therefore, for example, if a U.S. company is going to operate in 10 different foreign countries it may benefit them to have ten different foreign bank accounts in each country to help operate – while also eliminating business concerns of local customers and vendors. While a taxpayer may have one bank account with ten different currencies in it, many foreign countries prefer to do business with institutions that are local within their borders.

Leveraging their Account Safety

Another reason for having multiple bank accounts is that many foreign countries do not have FDIC insured or the equivalent. Therefore, by having bank accounts in different countries, a taxpayer can minimize the potential that they will lose all their money if the bank goes under — which can and does happen. Even if the bank does not go under, oftentimes if currency flow is an issue the bank may freeze funds and not allow taxpayers to move funds out of the institution

Unforeseen Currency Restrictions

Some countries restrict the amount of currency that can leave their borders in a year. For example, if a taxpayer wants to move money out of certain Asian countries, many of the countries have currency restrictions of $50,000. Therefore, if the taxpayer wants to make a large gift or has an emergency and needs to transfer money out quickly, having multiple foreign accounts in different countries may benefit them when money needs to be accessed quickly.

Forex Costs

Finally, by having various bank accounts in different countries, a taxpayer may be able to reduce forex costs.

Cons of Having Multiple Foreign Accounts

Here are some of the cons of having multiple foreign accounts:

U.S. Reporting Transparency

The United States requires taxpayers to disclose their foreign bank and financial accounts annually on various international reporting forms. Meanwhile, most taxpayers (understandably so) believe their foreign overseas should not be subject to the prying eyes of the US government. Thus, if a taxpayer has several foreign accounts overseas then they may become more proactively transparent when they have to begin filing different international information reporting forms.

FBAR and FATCA Reporting and Penalties

Depending on the amount of foreign accounts the taxpayer has, the value of the accounts, and the category of investment, the taxpayer may have to file several different IRS foreign tax forms each year. Not only can this become overwhelming, but the failure to timely and accurately file the forms can result in IRS foreign account penalties. Therefore, taxpayers should be aware of the reporting requirements for the different types of accounts they have before opening the accounts.

Lack of FDIC Protection

Especially for taxpayers who are not opening foreign accounts for business purposes but rather investment purposes, it is important to keep in mind that many foreign financial institutions do not offer FDIC-type protections. Thus, if a U.S. Taxpayer keeps too much money at one foreign financial institution — even if it is spread over several foreign institutions — they are putting their money at risk. Whereas if a taxpayer has their money spread in US accounts under FDIC limits at different institutions that would typically provide the best protection for their money.

Late Filing Penalties May be Reduced or Avoided

It is important to note that for Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.