U.S. EXPAT TAX GUIDE – BRAZIL
What is the FBAR, and when should US expats in Brazil file it?
If you’re a US expat living in Brazil and have foreign financial accounts, you may need to file the Foreign Bank Account Report (FBAR).
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You must do this if the total highest balance of all your foreign accounts exceeds US$10,000 at any time during the calendar year. The FBAR requirement isn’t limited to just bank accounts—it also includes savings accounts, brokerage accounts, and certain digital accounts like PayPal.
Why is filing the FBAR important for US expats?
Filing the FBAR is important because it lets the IRS know about your foreign financial accounts.
If you don’t file the FBAR when required, you could face heavy penalties. It’s always best to file if your foreign account balances exceed US$10,000.
What if you have more than one foreign account?
Even if none of your individual accounts holds more than US$10,000, you still need to file the FBAR if the combined value of all your foreign accounts exceeds this amount.
For example, if you have US$7,000 in one account and US$4,000 in another, you need to report both accounts because their combined total exceeds US$10,000. Even accounts with no money in them must be reported if other accounts push the total above the threshold.
Do joint accounts need to be reported on the FBAR?
Yes, joint foreign accounts must be reported on the FBAR if the combined value of all your foreign accounts exceeds US$10,000 at any point during the year. This rule applies even if you share the account with someone else, like a spouse or business partner.
If you share a foreign account and the total of all accounts you own or control exceeds US$10,000, you must file an FBAR.
Each person who owns or has authority over the account must file their own FBAR. For instance, if you and your spouse have a joint account in Brazil with US$12,000 in it, both of you must file an FBAR, even if neither of you has any other foreign accounts.
Additionally, if you have signature authority over a foreign account but don’t have a financial interest in it—such as managing an account for your employer—you may still need to report it on the FBAR.
How does FATCA relate to the FBAR?
Many people confuse the Foreign Account Tax Compliance Act (FATCA) with the FBAR.
FATCA is a law that requires foreign financial institutions, such as banks in Brazil, to report information about accounts held by US citizens to the IRS. This is why your Brazilian bank may ask if you’re a US citizen and request your Social Security Number—they’re following FATCA regulations.
Does FATCA replace the FBAR?
No, FATCA does not replace the FBAR. If you meet the criteria, you must file both. FATCA requires foreign banks to report your accounts to the IRS, but it doesn’t mean you’re exempt from filing the FBAR or Form 8938.
The IRS cross-references the information from your filings with the data provided by the banks to ensure everything is correct.
What are the penalties for missing the FBAR filing deadline?
The penalties for not filing the FBAR depend on whether the IRS thinks the violation was unintentional (non-willful) or intentional (willful).
- Non-Willful Violations: If the IRS believes you were unaware of the FBAR requirement, they may consider the violation non-willful. The penalty for a non-willful violation can be up to US$10,000 per account. However, if you can show a reasonable cause for not filing, the IRS may waive the penalty.
- Willful Violations: If the IRS believes you knowingly ignored the FBAR requirement, the penalties are much harsher. You could face a fine of US$100,000 or 50% of the account balance at the time of the violation—whichever is greater. This penalty applies per account, per year. In extreme cases, willful violations can lead to criminal charges, which may include additional fines and possible jail time.
- Criminal Penalties: If the violation is willful and severe, criminal penalties could apply. This may include fines of up to US$250,000 and/or up to five years in prison. If the violation involves a pattern of illegal activity, fines can increase to US$500,000, and the prison term could be up to ten years.
Can you avoid FBAR penalties if you didn’t know about the requirement?
Yes, in some cases, FBAR penalties can be waived if you can prove you were unaware of the requirement.
If you have a reasonable cause for not filing, the IRS may waive the penalties. This usually means explaining why you didn’t file on time and showing that you took action to correct the mistake as soon as you learned about it.
For example, if you didn’t know you needed to file the FBAR but submitted it right after finding out, the IRS may consider waiving the penalties. You need to provide evidence to support your claim, such as being a first-time filer or having misunderstood the rules.
Even if the IRS waives the penalties, you are still required to file the FBAR. The waiver only applies to the penalties, not to the filing itself.
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 Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
