What is the FBAR and why do I need to file it?
The FBAR (Foreign Bank Account Report) is a report filed with the Financial Crimes Enforcement Network (FinCEN) to declare foreign financial accounts exceeding $10,000 at any point during the calendar year for U.S. persons.
It is required to ensure compliance with U.S. tax laws and prevent tax evasion, with no taxes due on the reported accounts but penalties for non-compliance.
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What triggers the FBAR filing requirement?
The FBAR filing requirement is triggered when a US person has one or more foreign (non-US) bank accounts with an aggregate highest balance exceeding US$10,000 at any point during the calendar year. This includes any type of financial account where you have financial interest or signature authority, such as savings, checking, or investment accounts outside the United States.
Don’t forget retirement accounts, pensions, securities, crypto and any other type of financial account where your balance is positive.
Mortgage accounts, loan accounts, and credit cards don’t have to be reported, but the balance in those account types is typically negative.
Common Misconceptions
A common misconception among US persons abroad is that their bank’s KYC (Know Your Customer) procedures, which identify account holders as US persons, fulfill the FBAR filing requirement.
This is not the case. While banks may report information to the IRS, the responsibility to file the FBAR lies solely with the individual. The banks have a FATCA filing obligation. Individuals have an FBAR filing obligation.
FBAR Deadlines and Extensions
The FBAR form is due by April 15, with an automatic extension available until October 15. It’s crucial to note that the FBAR is purely a reporting requirement and does not, by itself, trigger a tax liability.
However, any income generated from these foreign accounts, such as interest or dividends, must be reported on your US tax return and is subject to taxation.
Joint Accounts and Signature Authority
Many US expats have joint accounts with non-US spouses or family members, or they may have signature authority over business accounts. These situations also require FBAR reporting.
It’s a common scenario for expats to overlook these accounts, especially if they’re not the primary account holders. Yet, failure to report such accounts can lead to penalties.
Why is it important to comply with FBAR filing?
Complying with the FBAR filing is crucial to avoid legal and financial penalties, as it ensures transparency of foreign financial activities to US authorities and helps in the fight against tax evasion. Failure to file can lead to severe consequences, including:
- Non-willful violations can incur a penalty of up to US$10,000 (adjusted for inflation) per violation.
- Willful violations may result in a penalty of the greater of US$100,000 (adjusted for inflation) or 50% of the account balance per violation.
- Criminal penalties may include fines up to US$250,000 and/or imprisonment for willful failure to file or for filing a false FBAR.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
