Residency-based tax still on expat wishlist

By the A.M. Costa Rica staff

Approving a same-country exception would be good, repealing FATCA altogether would be better, but the best choice would be adopting residency-based taxation.

That was the testimony submitted by an expat advocacy organization to a U.S. congressional subcommittee on the arcane aspects of the country’s tax code. Complex as U.S. taxation is, the regulations and laws are serious business for U.S. citizens living abroad.

The same-country exception, as proposed by American Citizens Abroad, Inc., would remove burdensome reporting by expats who only use a foreign bank in the country in which they live. Right now, the U.S. Treasury Department considers every foreign bank account as a possible offshore location for tax fraud. Many expats have been denied banking services because some foreign banks do not want to get involved in the complex reporting that U.S. laws require, according to American Citizens Abroad.

The same-country exception could be a change in regulation made by a Treasury official or a change in the law passed by Congress, the expat organization told the House Subcommittee on Government Operations. But the organization noted that the Treasury Department declined to do so when new regulations were created in December.

American Citizens Abroad, other expat organizations and some members of Congress have been promoting the same-country exception for two years. The organization notes that overseas expats need a bank account for day-to-day financial activities like shopping and paying other local bills.

However, the propose would require U.S. citizens overseas to file yet another document with the federal government to take advantage of the exemption. That’s why the expat organization testified that a better solution would be to eliminate entirely FATCA, the The Foreign Account Tax Compliance Act.

In Costa Rica, the U.S. law puts a burden on banks to obtain and submit extensive documentation on customers who are U.S. citizens. The law is one reason why U.S. tourists and frequent visitors cannot obtain bank accounts here.

Elimination the law would require congressional action and would almost certainly meet resistance from Treasury officials who see the measure are a barrier to tax evasion.

Better even than elimination the tax compliance act would be to eliminate entirely income taxes on U.S. citizens living abroad, said the expat advocacy organization. The United States and one African country are the only nations that tax its citizens on income earned anywhere, the organization said, although there is an annual exemption of more than $100,000 for income earned overseas

The Republican-controlled U.S. Congress is revising the entire tax code, so those promoting relieve for expats appear to be more optimistic.

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