The complexities of a US expat’s financial affairs have increased dramatically over the last few years.
And it, unfortunately, shows no signs of stopping as they continue to suffer from the Foreign Account Tax Compliance Act (Fatca), because the US has a citizenship-based taxation system.
There is a lack of services and offering for US expats in the global financial advice world due to the difficult situation forced upon them.
Financial advice firm SJB Global is one of the few companies looking to help.
‘Big difficulty’
Jake Barber, principal at SJB Global, said: “There are a lot more complications and restrictions with US citizens outside the States, as there are different tax treaties with each country.
“A big difficulty we face is finding providers with the right products. The product range is limited and often expensive as demand is low and providers are afraid of the tax legislation in the US.
“Cross-border planning is simple with the right setup.”
Fatca
But the simplicity of cross-border planning can become tricky with policies like Fatca.
The US legislation sets out that any US citizen living abroad is bound, alongside their foreign financial institutions, to report data to the IRS for tax purposes.
The US is one of two countries in the world who has a citizenship-based taxation system, together with Eritrea.
This has resulted in many banks turning down US expats as clients, forcing many to relinquish their American nationality.
Barber said: “Fatca was initially introduced to target those who evade paying US taxes by hiding assets in undisclosed foreign bank accounts.
“Due to Fatca and reporting obligations that come with it for financial institutions, we find that US citizens abroad find it difficult or impossible to open an account with any non-specialized firm mainly because the financial institution has to undertake a lot more due diligence which is often seen as a burden and risk.
“There are hopes that Fatca will be rolled back or reformed, however, there is no guarantee when or if this will ever happen.”
Limited opportunity
Due to the US tax system, expats are limited in what they can invest into.
Foreign mutual funds will be classified as Passive Foreign Investment Companies (PFICs) by the IRS.
PFICs must be reported on a complicated US tax form and are punitively taxed.
Barber added: “We help high net worth US expats with investment and retirement products which are both tax efficient and respect US Fatca regulations, as well as assisting with already existing US retirement plans such as 401ks and IRAs.
“US expats need to find a product which is compliant, and then find a professional organisation who understands US regulations as well as whose investment solutions are most suitable for them.
“What we try to do is simplify this process as much as possible.”
Working with US institutions
The complications surrounding US expats mean that there needs to be good communication with institutions across the States.
But how much of an issue can this be for firms?
“Initially the process was very time consuming, as all firms have different restrictions, so what we had to do was narrow down which institutions worked well for us and which didn’t,” Barber added.
“We then build relationships with the institutions whilst also researching for new opportunities in the market.”
Future
In November 2020, democrat candidate Joe Biden was successful in his election campaign against Donald Trump and has become president of the United States.
Biden is a completely different style of leader than Trump and this could mean a change in the US’ approach towards expats.
Barber added: “I see this being more positive with Biden’s win, as he pledges to review the barriers to accessing banking and financial services to Americans resident abroad.”
