Tax prospects getting better for American expats, says financial firm
More than three quarters of American expats and green card holders who have taken out a supplementary overseas pension contract are able to mitigate the effects of the Foreign Account Tax Compliance Act, it is claimed.
The FATCA created controversy when it was announced, as it appeared that people would have to give up their American citizenship to reduce the burden of the incoming tax law. However, it appears that careful tax planning means they will not have to do so by creating a tax qualifying FACTA compliant pension plan.
A poll by global financial advisory organisation the de Vere Group has found that most expats are ‘satisfied’ that they will now not have to relinquish their US citizenship. Some 78% who have created the compliant pension plan are no longer considering this option.
The Group’s findings buck the official trend. According to Treasury Department figures published in the Federal Register, 1,001 Americans gave up their passports or green cards in the first three months of 2014, an increase of 47% on the same period last year. This number was only surpassed in the third quarter of 2013, when 1,130 passports were handed back.
It is expected that a record number of US citizens will give up their passports this year, meaning more than 3,000 are forecast to do so before the end of 2014.
FATCA, part of the Obama administration’s 2010 HIRE act, has a host of serious unintended consequences for Americans living overseas. These include being rejected from non-US financial institutions, such as banks in their country of residence, and the onerous and expensive new reporting requirements for anyone with assets of more than $50,000.
‘The Treasury Department’s figures seem to highlight a clear correlation between the increase in expatriations and growing awareness amongst Americans of FATCA’s highly contentious, burdensome and expensive requirements,’ said Nigel Green, founder and chief executive of deVere Group.
‘The official statistics make for depressing reading. It is our experience that Americans are, quite understandably, loathe to give up their US passports. They don’t want to sever these ties, but do so as they feel there’s no viable alternative,’ he explained.
‘Against this backdrop of soaring US passport relinquishments, it is extremely encouraging that the overwhelming majority of those we polled who have created an additional overseas pension contract to mitigate FATCA’s complicated, costly and privacy infringing demands, told us they were satisfied with the action taken and that they would no longer consider giving up [their] US citizenship,’ he added.
According to the firm, the supplementary overseas pension contract recommended for US taxpayers with assets abroad will permit a qualifying expat to make annual contributions to a pension fund over and above US$51,000, which is not possible within the current US tax approved regime.
It means they can take advantage of tax-deferred investment growth and benefit from the opportunity to invest freely into Passive Foreign Investment Companies (PFICs) without incurring US tax penalties and burdensome tax reporting procedures.