Opening a Foreign Bank Account Without Affecting Tax-Filing Needs

Do you want to open a foreign bank account without triggering tax-filing needs? All your doubts regarding opening a foreign bank account will be resolved at Stay tuned and get more updates regarding your tax-filing needs.

FATCA Makes Opening Offshore Bank Accounts Difficult

The main reason to open an offshore bank account might be complex due to increased US compliance needs by businesses, banks and individuals because of the foreign account tax compliance act FATCA. For a taxpayer, the Foreign account tax compliance act allows filing needs only. There are no taxes allowed on foreign bank accounts as they are foreign. You must remember that if interest is earned, that might be taxable due to the offset of using the foreign tax credit.

The foreign account tax compliance act needs a FinCEN to form no 114 that should be filed if there is $10,000 in foreign bank accounts. To consider if you have a filing needs, you should check the amount of cash in your foreign bank account on the days when the sum is huge, and if they all add up to $10,000 or more, you might have to finish FBAR filing. Even if the amount is $10,000 for the complete year, a filing need is still triggered.

What Counts as a Foreign Account

What are foreign accounts, you might ask? The IRS claims that a foreign financial account is a financial account situated overseas. It might include securities accounts, bank accounts, pension accounts or foreign accounts, or even prepaid debit cards. There are a few exceptions, so when talking with a professional before you open an offshore bank account is recommended if you are in search of any clarifications or have a special case.

Understanding what is determined a foreign account is necessary, as unfiled FBARs might be subjected to $10,000 for every violation. If the IRS claims that you eliminate filing purposefully, the penalty might be $100,000 or more than 50 percent of the balance of the account at the violation time, whichever is bigger.

A Word About Foreign Brokerage Accounts

There are huge investments in foreign securities that are claimed as passive foreign investment organizations by the IRS. They are subjected to the reporting needs and additional tax.

A foreign corporation is known as a PFIC if it meets an asset or an income test.

  • Asset test: If at least more than fifty percent of the average percentage of assets generated or are held to create a passive income
  • Income test: If at least more than seventy-five percent of the annual gross income of the corporation is classified as an investment such as type income (royalties, capital gains, interest, or dividends)

Foreign mutual funds or other investments held by financial service providers or foreign brokerages might be determined as PFICs. If you are an indirect or direct shareholder of a PFIC, you should file form 8621 with US taxes every year that you:

  • Create an election report on form 8621
  • Get particular indirect or direct distributions from a PFIC
  • Get a gain on an indirect or direct disposition of PFIC stock

It might result in an additional tax penalty, and it might complicate your tax filings. Offshore investment accounts might hold an aggressive tax treatment than US accounts that most US citizens might not even realize until they make an investment. US mutual funds such as foreign stocks might have a long-term capital gains tax of more than 15 percent. Also, the same fund outside the USA or in the UK, for that matter, might create ordinary income in the IRS eyes that might be taxed at your top individual rate of 37 percent.

Also, PFICs do not have the same benefit when it comes to capital losses. It cannot be carried forward or used for other capital gains.

Some Offshore Bank Accounts Need Reporting, Like Forms 3520-A and 3520

There are some foreign retirement accounts that might trigger form 3520-A or 3520 as the IRS might check them as foreign grantor trusts.

You must take the example of John, who is a taxpayer, a US citizen who lives in Europe and has started a private pension plan. John makes contributions to the plan, and it is managed by a trustee who takes property title to conserve the funds as the beneficiary. The trust is protected from creditors, and it is deemed to become eligible as a foreign grantor trust.

As John is a US citizen who satisfies the ownership regulations of a foreign trust and has transferred the cash to the foreign trust, He has a need to file form 3520. It is an annual return to report transactions with receipt of specific foreign gifts and foreign trusts. Also, as the US owner of a foreign grantor trust, an annual information return of a foreign trust with a US owner should be filed. It is nothing but form 3520-A

Non-Compliance Charges and Taxes When Opening a Foreign Bank Account

Fines for non-compliance might be huge. Failure to file a form 3520-A, filing all details, or filing include incorrect details. The starting fine is huge, $10,000 or more than 5 percent of the gross value of the portion of the asset of the trust as owned by the US individual at the close of the financial year.

Form 3520 Part II filing failure or furnish all the details needed or incorrect details failure then you have to pay the separate fine would be greater than $10,000. Or more than five percent of the gross value of the portion of the asset owned by the US individual at the close of the financial year.

If you fail to report the transfer or creation to a foreign trust, then more than 35 per cent of the gross value of the property will be given to a foreign trust. Also, if you fail to report distributions received from a foreign trust by a US individual, then you have to pay 35 percent of the gross value of the distributions.

In some scenarios, one account- for instance, a foreign investment account which is a foreign grantor trust might trigger needs for all the kinds of discussed forms such as 8621, 3520A or 3520

While all these things when opening foreign accounts should be considered, they must not dissuade you from opening foreign accounts. The most crucial thing is to understand the ramifications when you open a foreign bank account to plan your financial future.

Do You Have Doubts About Opening Offshore Bank Accounts? is there to aid you. Our committed and dedicated IRS and CPAs enrolled agents are there to help you in the best possible way. If you have any doubts related to opening an offshore bank account, then make sure to ask them, and they may resolve all your queries. Our experts make sure to discuss with you in-depth about opening offshore bank accounts and your tax filing needs. You don’t have to worry as the are there to guide you and resolve your queries. If you wish to know more about FATCA or your tax-filing needs, then make sure to reach out to, as we are there to help you. So, what are you waiting for? Schedule a call with right now!

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