Challenges facing U.S. expats -Meyado

Challenges facing US ExpatsPresentation to Meyado Private Wealth Management

09/10/2014

Who are we?Derren Joseph

Derren Joseph, is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associatemember of the American Institute of CPAs (#7920958). He has a Masters in Economics from the University of Aberdeen (Scotland), aMasters in Development Studies from Middlesex University (London), a first degree in Business and holds a Certified Diploma from ACCA(Association of Chartered Certified Accountants in the UK).

Derren has done work for large, listed companies as well as Small and Medium-sized Enterprises (SMEs). He also has over 15 years’experience in financial and econometric modelling with British, American, & Caribbean companies. Derren’s experience includes Senior orDirector-level roles, at companies such as British Airways, Expedia, H T Joseph CPA and Caribbean Airlines.

Since 2007, Derren has been working with Americans in the Caribbean, the U.K., and Miami, FL. His specialty is working with expats withequity stakes in SMEs. Derren moved to Singapore in October 2013 to take up the role of General Manager at AETS and has had his viewspublished by the Singapore Business Review, the International Business Structuring Association, Compliance Alert, Caribbean 360, theGuardian, and the Jamaican Observer among others.derren@expattaxUSA.com

This document or presentation is not intended or written to be used, and may not be used, for the purpose of avoiding penalties that may be

imposed on the taxpayer.

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

What is a US Person? - Citizenship vs residency based taxation

• Passport holders

• Permanent residents

• Substantial presence

• Accidental Americans

• NRA spouses who make a Sec 6013g election

What is a US Person?- Citizenship vs residency based taxation

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

• The Foreign Account Tax Compliance Act (FATCA) is codified as Chapter 4 of the Internal Revenue Code. It represents theTreasury Department's efforts to prevent U.S. taxpayers who hold financial assets in non-U.S. financial institutions (foreignfinancial institutions or FFIs) and other offshore vehicles from avoiding their U.S. tax obligations.

• The intent behind the law is for foreign financial institutions (FFIs) to identify and report to the IRS U.S. persons holding assetsabroad and for certain non-financial foreign entities (NFFEs) to identify their substantial U.S. owners.

• In order to comply with the rules, FFIs are required to enter into an FFI agreement with the U.S. Treasury or comply withintergovernmental agreements (IGAs) entered into by their local jurisdictions.

• U.S. withholding agents (USWAs) must document all of their relationships with foreign entities in order to assist with theenforcement of the rules. Failure to enter into an agreement or provide required documentation will result in the impositionof a 30% withholding tax on certain payments made to such customers and counter-parties.

• Failure to impose the requisite withholding under FATCA requirements could result in significant financial exposure.

• Implications of FATCA IGA for US persons

• Banks / Financial Institutions

• US based brokerage firms

• Annual Returns / Form 8938

Penalty - Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose,for a potential maximum penalty of $60,000; criminal penalties may also apply

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

Point #1 – Non qualified insurance policies

• Insurance policies can be treated as US qualified, US non-qualified or a PFIC

• US qualified – if you have to ask…

• PFIC – to be discussed later

• US non qualified –• If underlying fund (in which the policy invests) are only available to the fund

and not the general public

• If policy holder doesn’t have the right to select from menu of funds

• Then there should be no look-thru rule (not a PFIC)

Point #1 – Non qualified insurance policies

• Section 7702(g) says the “income on the contract” must be reported as ordinaryincome.

• “Income on the contract” = increase in “net surrender value” during the taxableyear + “cost of life insurance” for the year – premiums paid during the year.

• “Net surrender value” = cash surrender value.

• “Cost of life insurance” should roughly equate to the annual insurance cost of thecontract – as opposed to the investment component.

• We add this annual increase to the tax basis of the policy (in addition to totalpremiums).

• Sickness payments should reduce this basis with any excess generating income.

• We track policy basis with increases for premiums and taxable increases in cash value. No loss for the years when cash value goes down.

• Everything fully disclosed in attachment to return

Point #1 – Non qualified insurance policies

• Foreign life assurance or sickness and accident policies. Must paycustoms & excise tax at a rate of 1% of the premium paid per year.

• This must be reported on Form 720 on a quarterly basis.

• To be able to file Form 720 you will first require a EmployerIdentification Number . This can be obtained by completing form SS4.

• Once you have your EIN you can now complete your 720 forms

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

Point #2 - PFICs

• Enacted in 1986 to limit tax deferral by US investors in off shore funds

• Previously off shore funds had an advantage over domestic funds. Notax till distribution.

• Post 1986, there is a level playing field for both domestic and offshore mutual funds. The U.S. puts the burden on the shareholder todetermine their share of the income of the investment company. Thetax code does not encourage U.S. persons to invest in mutual fundsoutside the U.S.

Point #2 - PFICs

• To employ this punitive regime, the IRS requires shareholders of PFICsto effectively report undistributed earnings via choosing to be taxedthrough one of three possible methods-

1. Section 1291 fund,

2. Qualified Election Fund, and

3. Mark to Market election.

Point #2 - PFICs

Point #2 - PFICs

Point #2 - PFICs

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

Point #3 - FBARs

Point #3 - FBARs

Point #3 - FBARs

Outline

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

Amnesty

• US persons - Citizenship vs residency based taxation

• Implications of FATCA IGA for US persons• Banks / Financial Institutions• Annual Returns / Form 8938• US based brokerage firms

• 3 points for compliance -• Point #1 – Non qualified insurance policies• Point #2 – PFICs• Point #3 – FBARs

• Amnesty

• Q&A

Q&A

Appendix – FATCA vs FBAR

Appendix – FATCA vs FBAR

Appendix – FATCA vs FBAR