Understanding the New FATCA Laws for Americans

Of all of the ups and downs that go along with being an expat in Spain, money and finance can be one of the most frustrating. But what happens when your bank threatens to close your accounts just because you’re an American?

In July, co-founder Cat found that her three banks accounts had been frozen, launching a logistical nightmare while she navigated furnishing a new house and entertaining family with no access to her money. The reason was a US-based law, known as FATCA, that her Spanish bank had misinterpreted, thanks to letters from Uncle Sam and the threat of losing holdings in America should the bank not comply.

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For Cat, the results of her bank’s misinterpretation of the law meant thirteen days without the ability to pay bills, an open legal case and a great deal of confusion as to how to come into compliance. In the end, a clerical error on the bank’s part was to blame, but should you find yourself in a similar situation, prepare yourself for the consequences of FATCA as an American banking in Spain. From what we’re hearing, Spanish banking institutions are beginning to take the FATCA regulations very seriously.

What is FATCA?
FATCA, the Foreign Account Tax Complaint Act, was just a bill sitting in line with a bunch of other bills in 2010. The premise was noble enough – to find and tax wealthy Americans whose big bucks sat in offshore accounts while they lived comfortably in the US.  In 2014, the bill finally passed into law. What does the law aim to do, now that it’s in action?  Require all residents abroad to claim the money they have earned and assets to the US government. It’s estimated that six million foreign-living Americans are affected, as well as anyone born in the US, regardless of their current residency.

While the bill was still in the works, the US got foreign banks involved by asking them to report all pertinent financial information on all American citizen banking with their entity. Spain, along with other European countries, announced in 2012 that their financial institutions would be 100% compliant with the legislation, providing all information to the IRS by July 1st, 2014.

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[America is one of the few countries that taxes its citizens who live abroad (for proof, look at your passport). Even if you pay taxes on foreign income earned in your country of residence, like Spain, you are still required to file back home. Those who meet the foreign earned income exclusion by proving they live outside of the US are automatically granted a two-month extension when filing their American taxes.]

In short, FATCA is a law that in theory sought to find fat cats hiding money, but in reality seems to be punishing middle class Americans who are working and living abroad.

How does it affect me, or will it?
Chances are, it won’t. FATCA rules state that, while banks must report your financial holdings with their institution, you are not liable to be taxed until you reach a threshold of $50,000. This does NOT include property holdings, but rather, whatever you earn outside of the US. If you do possess more than this amount, you could be asked to pay taxes of up to 30%, though certain types of income (including retirement) are exempt. COMO suggests you look for a tax lawyer versed in the new regulations.

If anything, you may not be able to open an account with certain banks, or, your bank may ask you to sign a W-9 form, which allows them to report your information to the IRS. If you’re not comfortable with this, find another bank, such as a smaller caja or caixa. In a very rare case (like Cat’s), your accounts may be temporarily frozen until you turn in the proper documentation, though your money will not be touched.

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If you have not been filing your US taxes, you have a chance to catch up through the government’s Streamlined Filing Compliance procedures. You’ll have to file returns for the last three years and Foreign Bank Account Reports (FBARs) for the last six years if your account has totaled more than $10,000 in a calendar year, paying any taxes owed plus interest, but with no penalties.

This is BS. What can I do to stop it?
The adoption of FATCA has caused uproar in Congress and tons of outrage from people living abroad. So much so, in fact, that people have or are considering renouncing their US citizenship. Reforms have been discussed largely by both parties, mostly centering on same-country exemptions for legal residents and raising the $50,000 threshold.

You can’t stop it, but you can speak out about it. Get in touch with your congressional representatives and remember to vote in local and national elections (including the midterm election this November).

If you’ve been affected by FATCA in a negative way, we’re interested in hearing about it! Shoot us an email or comment below.

Author: Como Consulting Spain

Cat and Hayley are relocation specialists who can help you move to, live in and work in Spain. We'd love to hear from you! hola@comoconsultingspain.com

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11 Comments

  1. It would be great to get a bit more clarity. $50,000 total in cash from various banks? or $50,000 in one account? How would this change if all your assets were under a LLC in the states? Would the Spanish government be able to tax that income? Lets say for example, you didn’t collect income from the LLC rather reinvested the income back into the LLC? Therefore there isn’t any personal income.

    Thanks for the article.

    Post a Reply
    • Hi Crystal, like you, we’d love more clarity! Even our banking institutions were little help, as the law is so new and it’s been called out for being difficult to interpret. If you have an LLC in the US, the Spanish government is NOT able to tax anything you earn in the US, and the purpose of FATCA is to pursue those who reside in the US with money just sitting in foreign bank accounts, even though there are millions of us in the middle. The $50K amount is in various accounts abroad, not just one.

      Because the situation you mention is highly personal, we recommend getting in touch with tax lawyers. We’ve heard Artio Partners in Chicago are great and experts in expat taxes. Here’s their site: http://www.artiopartners.com Good luck!

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  2. This is the first time I have felt discriminated in Spain for being an American. It all started in a shopping mall, a nice and helpful ING representative opened up an account for me, and even offered me a 100 € gratification for becoming a client, I sign the regular form as any client would, and right there she made a photocopy of my ID, which happens to be Spanish (DNI)

    At the reverse of any Spanish ID, one can find information such as, one´s place of birth, and in my case, my place of birth happens to be in one of the 50 States, “OHH, so you´re American, eh? You have no accent whatsoever and you look Spanish too” The reason why is because I was born in the US, but my family is Spanish, in fact I´m a Spanish Citizen by bloodline, I see! She said, “Well in that case I don´t think you´ll affected by FACTA” , I had no idea what that was, but recently after giving my employer my new account number to get my monthly salary transferred in to it, I received an email from ING Direct, long text short… “You´re obligated to file a form agreeing to pass on your personal information to The American Internal Revenue Services”.
    I am shot right now, as I´m finding out information that I never knew before, such as My obligation to file taxes in America. Paying taxes twice for the same earnings? , since I file for The Spanish Hacienda every year) Seems like a bad joke to me.

    I earn very much an average wage here, as an employee in a small Spanish company, I´m struggling at present like many families in this country to get by on my salary, which has been reduced since this long crisis started and today as it is, seems to be insufficient to cover for all my regular and basic expenses, roughly $ 1.500 per month. Am I too obligated to file such form? The small bank I work with, as today, has never asked me to file the so called W9 form, Am I obligated to file taxes to the IRS for previous years? What could happen to me if I stay working with my small bank and ignore all this? I´m confused and worried for all of this, Could you give me an advice?

    Post a Reply
    • Hi Mar,
      We are both just as confused by American tax laws and equally outraged by the new FACTA laws. Why don’t you start by signing this petition to put an end to FACTA.
      Unfortunately, as an American citizen you are required to file taxes in the US every year. Luckily, there are exemptions called Foreign Earned Income Exclusions, which considering your situation will likely excuse you from owing the US any money. That being said, filing is complicated and you might have to pay a tax lawyer to help you file (and file back taxes). Send us an email if you’d like more information – hola@comoconsultingspain.com

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    • Hi Mar, I realized just two years ago that I needed to start “filing” in the US as well, thanks to a friend of mine living in France. Like you I’m not much more than a ‘mileurista’ and find this an outrage, as all of these laws claim they want to catch the fat cats, but in reality they have cast a net over all of us. Regarding the filings, I file the 1040 full of zeros (as I have no bank account in the USA — making this even more ridiculous) and the 2555EZ with the amount I made in Euros. I also enclose a letter letting the IRS know I have declared my fiscal residence in Spain. I send it certified mail and in the two years have yet to hear a peep, so I guess I’m doing it right…

      Regarding this new thing, I’m not really sure what to do. I purposely didn’t transfer my money out of La Caixa to ING, which is cheaper, to avoid this issue. I have no idea if La Caixa is going to notify me or if I should just play dumb.

      Cat, any opinion?

      Best, Allison (Madrid)

      Post a Reply
      • Hey Allison,

        Which new thing are you referring to? And do you mean that La Caixa has not contacted you about taxes, about the FBAR, about the W-9 form? Great to hear from you!

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  3. I am a UK citizen. My wife is a US citizen who also has UK citizenship. On Friday, without any warning at all, BANKIA locked our joint account. This particular account only had my wife’s name on it for convenience – in fact all of the funds in that account were mine. So, now, as a UK citizen I find my personal funds blocked because my wife’s name was also on the account. They are demanding a W9 form… this would involve disclosure of MY funds and MY transactions to the crazy American government – and I will not consent to that. This is a government that carries out executions, torture, extra-territorial murder and illegal abductions and has no regard for civil liberties whatever. Hence, my aversion to getting involved with them. I absolutely will not comply with their demands for disclosure – so I suppose that leaves the account blocked indefinitely….

    Post a Reply
    • Hi Andy, we’ve been victims of FACTA and feel it really undercuts people who make humble salaries. It’s a shame that you’ve been affected, too.

      Have you tried appealing to the bank? I don’t know how you’d get funds unless you gave your tax information, but you could try and get your government involved. Wishing you all the best.

      Post a Reply
    • Dear Cat and Andy,

      First off, sorry Cat for not replying earlier. I called and spoke with my personal account manager at Caixa Bank, and she informed me that since my account was opened with my NIE and that per previous employment requirements my fiscal residency has shifted to Spain, easy thing to do at Agencia Tributaria, I am all good and do not have to fix anything. For Spainish banking (and US I assume), I’m not American. Of course being an American citizen I have the joys of dual tax filing until I die.

      Andy, is her ID listed a US passport? If so, that might be your problem … Fingers crossed you can fix it!

      Post a Reply
  4. My wife and I have maintained an account with a Spanish bank for over 40 years, mainly to pay bills related to the upkeep of an apartment in Spain, such as taxes, insurance, electric, water, etc.
    About once per year we wire transfer money from a US bank to our bank in Spain. In May of 2016 we attempted to transfer money to our account; the wire was returned to the US bank, the reason being that our account was frozen. The reason for freezing the account has nothing to do with FATCA, rather it has to do with a Spanish law passed in 2010 regarding money used to finance terrorism or money laundering. We eventually had a friend of ours in Spain deliver documents—a copy of my and my wife’s passport, a statement of my earnings from retirement annuity, and other documents-to one of the bank’s employees. An official at the bank sent me a 6-page form, all in Spanish of course, which I am supposed to read, understand and sign. The form contained three errors: my birth date, the issue date of my passport and that my native language was castellano (standard Spanish), which it is not. At any rate, I sent back an email telling the official about the errors and asking that an English version of the document be sent to me. (My wife is Spanish and was able to translate the document, but I still need an English translation.) It’s been over three weeks since the email was sent. So far, not a peep.

    My question to you is: Do you know anything about Spanish banking laws that requires a bank to eventually respond to the efforts of one of their clients to get an account unfrozen, or can they maintain the frozen status indefinitely? Trying to get an answer to this question is what led me to your web site. Getting this account unfrozen is getting to a critical point, because taxes and insurance payments are due now. Any help or info you can provide will be greatly appreciated.

    Post a Reply
    • Hi Don, a sticky situation, indeed. Your accounts, by law, can only be frozen is you are a convicted criminal or suspected of fraud. Likely the bank needed those documents earlier, but if you didn’t receive any sort of ‘comunicado’ or letter, you’d have never known. The bank, by law, must give you notice before freezing or suspending your account.

      We’d suggest having a lawyer file a motion on your behalf against the bank, after which the bank has two months to respond. If things clear up, no problem. If not, you can take them to court and sue them.

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