United States citizens and tax residents need to be aware of incoming changes to U.S. tax law.
The impact of the new United States Foreign Tax Compliance Act (“FATCA”), which prevents U.S. citizens and tax residents living outside of the U.S. from avoiding paying tax in that country, is in effect.
In June 2014, New Zealand signed an inter-governmental agreement with the U.S. agreeing to implement FATCA here, and those changes are now hitting the ground and expected to be enforced in the very near future.
The regime requires financial bodies such as banks, investment management companies and, in some instances, law firms, to collect the account information of any U.S. citizen or tax resident clients. As part of the changes, law firms like Aspiring Law are required to pass that information on to our bank, who will, in turn, forward it to the Inland Revenue Department, then the U.S. Inland Revenue Service.
Privacy issues aside, for most folk to whom this applies, the practical effect of the changes may be minimal. While U.S. citizens or tax residents living and paying tax in New Zealand shouldn’t run in to too many problems, there is potential for some U.S. tax liability exposure in respect of differences in capital gains tax and receiving U.S. inheritances.
If this is ringing alarm bells for you, or you simply want to check that all your U.S. tax affairs are up to date, we suggest you follow this up with an appointment with an accountant, and come and see us about possibly re-structuring any legal entities you’re involved in to remove any U.S. citizens as directors, trustees and the like.
From a practical perspective, in order to comply with the new tax laws, Aspiring Law will now need to ask to see all of our clients’ passports and keep a register of U.S. citizen or taxpayer clients.