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.
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.
[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.
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.