American Expats – Abroad, not off the Radar

Janice Diaz (00:00)
You moved abroad for freedom, not confusion, but your money, your taxes and your US ties didn’t stay behind. I’m Janice Diaz, an American living in Italy with more than 25 years in US and global financial services.

My co host, Robert Rigby hall is a dual US UK citizen who spent his career leading international firms and developing cross border teams. Together for over a decade, we’ve built financial education for Americans abroad and US connected families, helping you rethink what really follows you and how to make smarter decisions wherever you live. Welcome to Rethink Expats.

Disclaimer this show is for education. It is not tax, legal or investment advice. Always speak with a qualified professional about your situation.

Robert Rigby-Hall (00:53)
Hi, welcome to this edition of Rethink Expats. We have titled this one American Expats. You’re never out of Sight. And what’s the reason for that? Well, lots of Americans abroad think, okay, I left the US So now I’m kind of off the grid. The US isn’t going to be able to track me, isn’t going to see me. But the truth is the US Knows where you are.

And I don’t mean that in terms of tracking you digitally through your phone, although perhaps they can even do that. But I think of it in terms of the banks are required to report your assets, you’re required to report your assets. So there really is no hiding no matter where you are. Example for me is as a naturalized American, I left to go and work in Singapore and I thought to myself, okay, this is going to be either the same as it was when I was living in the US or maybe it’s going to be easier because I don’t have all the same reporting requirements. Maybe. But then there were a ton of rules that I didn’t know even existed. Things like FATCA, FBAR, new tax filing dates, the ability to do tax extensions, which only expats can do. The way the US Banks treated me now that I was living overseas, and in fact the way that the foreign banks treated me when I was living overseas. I thought it would be easy to go and open bank accounts. But no, they didn’t necessarily want me as a customer because of some of the onerous reporting requirements that the US has.

Janice Diaz (02:17)
And even though I literally grew up in financial services, when I became an expat, I had no clue, like you about fat and f bar and the timeframes. I was very naive in the way that I did things. I just kind of said, okay, yes, I’m moving over, and then got there and then understood what it was to be taxed in a foreign country, what it meant to be an American abroad. It’s different when you’re actually in that position because now you start understanding. I was in a very unique position because I had to now do marketing for the same type of person that I had become that American expat. It was really through creating the financial education that I started learning and working with my accountant and doing those same seminars or webinars with the advisors that I really started understanding what it is that I had now become that American expat and what that all means. Because I don’t think a lot of people really realize what it means until they’re in that position.

Robert Rigby-Hall (03:19)
Yeah, Janice, you’re right. I think a lot of people think, okay, so I’m not living in the US any longer, so this doesn’t apply to me. And the reality is as a US citizen, you’ve got lifelong tax and reporting obligations irrespective of where you’re your residence is. Whether it’s I’ve moved permanently, I don’t intend to move back to the US or it’s I’m here as an on an assignment for two or three years or I’m going to be a digital nomad and go to multiple countries. But there’s still requirements you have in the US it may not be state requirements, but it’s certainly going to be federal requirements. Even down to things like child support, alimony, student loans. Those don’t disappear. You can’t escape those by going overseas.

So you’re right, it’s complex, it’s difficult. And unless you’re prepared to renounce citizenship, which is a multi step process, very costly, has tax implications because you get taxed at exit as well, unless you’re prepared to renounce your citizenship, then you’re going to remain a US taxpayer forever and have to do all of the associated reporting with it.

Janice Diaz (04:28)
Yeah, I didn’t realize when I accepted the overseas assignment that U.S. citizenship means lifelong tax reporting obligations regardless of residence to the US and for me that’s okay because I’m American and those are the things that have to be done. But it was a learning experience to go through all of that. What is FATCA? Foreign Account Tax Compliance Act. Never heard of that before when all of a sudden I was living it and having to also educate people about it.

Janice Diaz (05:00)
So what is FATCA? The acronym F-A-T-C-A is the Foreign Account Tax Compliance Act. It is a US law that requires foreign financial institutions to report accounts linked to US taxpayers to help prevent offshore tax evasion. So I came across this when I went to open a bank account in the Netherlands.

Banking in a foreign country, that bank has to report you as a US client. And so when I went to open up an account in Amsterdam, they asked me a bunch of questions, unlike when you open an account at Chase Bank or somewhere in the United States where it’s like, show me, your social security number, give me your driver’s license or ID and boom, you leave the bank with an account and I had to literally go back a few times before they would even accept me at the bank.

Robert Rigby-Hall (05:52)
Yeah, FATCA is an interesting one. You can complete the form. It’s called Form 8938 as a U.S. taxpayer and send it in with your tax return. It covers all of the financial assets outside the U.S. that you have. So that would include foreign pensions, foreign bank accounts, foreign mutual funds, if you’ve been able to open them, because many investment funds will not allow ⁓ U.S. taxpayers in.

It covers foreign life insurance, partnerships if you have a business with somebody. And again, the U.S. doesn’t automatically get that information from the U.S. automatically gets that information from U.S. institutions. But this is their way of keeping up with any of your foreign assets. And as you said, Jack, is one of the reasons that the U.S. banks really only want Americans as cash holders, as checking accounts.

It’s too complicated for them to have them as investors. The fines are too high and the IRS has been really cunning in that they go after the foreign banks, U.S. assets to try and levy fines and penalties on them if they haven’t reported effectively. You combine that with the FATCA with the FBAH and that’s another way that they’ve been kind of closing down on tax havens where Americans used to put their money. You can go back in time and you think about Swiss banks and they forgot the accounts that were there and the institutions didn’t report them to the IRS. All of that’s gone. Everything now for a U.S. citizen needs to be very clearly reported. And so it’s just changed what’s going on.

Janice Diaz (07:27)
That’s the perfect segue into actually explaining what FBAR is, Foreign Bank Account Reporting, because this is something that when you’re working with your accountant, this comes up and sometimes there are variations in what people think is the information that the IRS is looking for. Robert, can you explain that more to us?

Robert Rigby-Hall (07:49)
Absolutely. the foreign bank account reporting. This is really about U.S. citizens being required to file an FBAR for any bank accounts that exceed $10,000 at any time during the year. So if you had $9,999, you don’t have to report it. If in March, you went to $10,001, then you need to report that bank account. And they’re filed separately from your tax return. Actually, it’s a slightly different timing. Again, another complication.

But the purpose of it really is to make sure that Americans are not hiding money overseas. So it makes it a clear way for the U.S. federal government to ensure that they can get taxes on broad financial assets that you may have outside the U.S.

Janice Diaz (08:36)
So let’s talk a little bit about why financial education helps. The point isn’t to turn everyone into a tax expert. There are experts for that and that’s who you should be using for your tax. It’s about knowing the rules exist so you don’t stumble into trouble. And a lot of that because we’ve lived that expat, we’re expats too, we’ve lived that life and we’ve stumbled into it, maybe not necessarily trouble, but just stumbling into something that is very important in your new world.

Robert Rigby-Hall (09:04)
Exactly right. Once you know the right questions to ask, whether that’s with a tax professional, with an advisor, or even listening to things like this podcast, once you know the right questions and you know the rules exist, then you won’t stumble as much as you might if you don’t know them. US expats are not off the grid. The reality is, FATCA, FBAR are ways for the US to keep on checking in with you, keep on levying tax on you and doing that forever. So you don’t need to know every single line of the law, but you do need to know what follows you around as you leave the US. So thanks for joining us on Rethink Expats.

Janice Diaz (09:47)
You can find more resources, guides and upcoming episodes at rethinkxpats.com. Until next time, keep your money smart, your paperwork clean and your mindset global.