Overseas pensions bring light to the dark of FATCA for American expats

18 May

The results of a recent poll of deVere Group’s American expat clients have shown that over 75 per cent of thosewho have an overseas pension contract are “satisfied”they will no longer relinquish their U.S. citizenship to mitigate the adverse effects of Foreign Account TaxCompliance Act (FATCA).  

The highly contentious new law – which comes into effect on July 1st this year – causes a whole host of problems for U.S. citizens who live abroad.  Described by critics as ‘the worst law most Americans have never heard of’, FATCA will require every foreign financial institution in the world to report their American clients’ financial activities to the Internal Revenue Service.


American expats are therefore being routinely excludedfrom non U.S. financial institutions, such as banks in their adopted country, plus they will have to endureburdensome and costly reporting requirements if they hold assets exceeding $50,000.


During the first three months of this year, 1001 Americans have relinquished their passports or green cards ahead of the implementation of FATCA, with up to 3,000 U.S. citizens expected to do the same before the end of 2014, according to figures released by the Treasury Department.


To my mind, these figures highlight that the increase in the number of American expats giving up their passports or green cards is inextricably linked to heightened awareness of the polemical implications of FATCA, and the negative bearing it would have on their financial situation.


I find it shocking and saddening that people feel that they have no choice other than to renounce their citizenship, something they are extremely reluctant to do, as they believe there is no alternative.


However, it is extremely promising – and indeed very rewarding – that the majority of the deVere Group clientswho we asked on this subject who have taken on an overseas pension contract in order to lessen the FATCA blow, and are very pleased with their decision to do so, now say that they would “no longer consider giving up U.S. citizenship.”


There are numerous advantages to securing an additional overseas pension contract, which is targeted at U.S. taxpayers with assets in their country of residence.  Individuals are able to make yearly contributions to their pension fund above $51,000; benefit from investment growth under a tax deferral system; and have the ability to invest in Passive Foreign Investment Companies(PFICs) without the danger of running into U.S. tax problems or having to comply with arduous tax reporting requirements.


With less than two months to go until FATCA comes into effect, the time to take action to mitigate the consequences of this, frankly, toxic and far-reaching new tax law is now.




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