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PRESENTED BY TAXES FOR EXPATS

‘The age of financial privacy is over’

Jonathan Weiss hasn’t lived in the US for 25 years. But that didn’t keep his foreign bank account from being frozen in the wake of new US tax laws. Find out how you can avoid the same fate at the hands of FATCA.

'The age of financial privacy is over'
Photo by Scott Graham on Unsplash

“I had been living in Switzerland for ten years, and then out of the blue I got a letter from my bank, saying that since I am an American citizen I had to file some extra paperwork,” Jonathan Weiss tells The Local. “Two weeks later my bank account was frozen.”

Weiss was born in the US, but has lived abroad since age ten, in both Asia and Europe.

“I was just living in Switzerland, working there, minding my own business,” Weiss recalls. “And then I was caught up this net.  I had no idea what to do.”

That was his first encounter with the long arm of US tax law – FATCA.

If you’re an American living abroad, chances are you’ve heard of FATCA. And if you haven’t, you probably should have. Or there may be serious consequences.

“FATCA requires foreign banks to report information to the IRS regarding all financial accounts held by American clients,” Ines Zemelman, a tax agent specializing in expatriate taxes, tells The Local.

“The age of financial privacy is over.”

Over 100 nations have already agreed to provide the IRS with such information, including Germany, France, Spain, Italy, Switzerland, Austria, Sweden, Denmark, and Norway.

The acronym (which stands for Foreign Account Tax Compliance Act) has been floating around since about 2010, when it was signed into US law. However, the new rules only came into effect in July 2014.

“FATCA was attached as a rider to the 2010 jobs bill,” Deedee Gierow, an American expatriate living in Sweden, tells The Local. “The purpose of it was to go after wealthy people hiding money off-shore. But, as is often the case, it was not well thought-out.”

Americans who fail to report their foreign assets can face hefty delinquency fines – but it’s even more complicated than that.

“Most Americans living abroad do not make enough money in their country of residence to owe tax in the US, but they must nevertheless file taxes with the IRS,” Gierow explains.

“The US is one of only two countries in the world which has citizenship based taxation, the other being Eritrea.”

Gierow is chairman of Democrats Abroad in Sweden, and has spent the last year trying to inform fellow American expatriates about the complications of being a US taxpayer abroad. Many Americans in Sweden have been contacted by their banks about limiting services.

“There is no escaping anything anymore, even if you are perfectly innocent,” she says.

Weiss was one of those “perfectly innocent” American expats stung by the legislation.

“It’s targeted at people who are stashing money off-shore, but I just happened to live abroad,” Weiss says. “Anyone who has relations to the United States is being caught up in this net.”

Indeed, Zemelman says it’s not just people with US passports or green cards who are targeted, though they are among the first.

“That would be too simple,” she says.

Foreign banks have a list of various criteria to examine when determining if clients have a significant connection to the US. Every account is evaluated individually.

“A client may have transferred funds to the US or may have an American address,” Zemelman says.

In such cases the bank will send a form to the client asking if he or she is American – and lying on the statement is considered perjury.


Passport photo: Shutterstock

If foreign banks refuse to comply with FATCA, they are slapped with a 30 percent fine on all transactions they have with US banks.

But many countries have secrecy obligations and cannot hand information directly over to the IRS – so they send the information first to their own tax authorities, which then forward the information to the IRS.

“This is very expensive and time-consuming for the banks, and so many banks are closing or denying financial services to US citizens living overseas,” Gierow says.

Foreign banks that provide services to Americans have to ensure that all US tax obligations are met – which means that American clients must provide proof that they are current on their tax filing obligations and their FBAR (Foreign Bank Accounts Report). If not, their accounts can be frozen.

Weiss learned this the hard way.

“I wasn’t aware of any of these things and they only gave me two weeks to respond, and after that they froze my account without warning,” he explains. “They told me I needed to get a professional certification showing that I was compliant, that I had filed all of the FBARs and everything.”

And according to Zemelman, it’s only a matter of time before every American abroad has been contacted about compliance matters.

Zemelman, who has been working with expatriate taxes for 23 years, is also the founder and director of Taxes for Expats, a New York-based tax preparation firm that focuses solely on assisting Americans living abroad.

“Filing back taxes and missing FBARs can be a daunting task when approached solo,” Zemelman says. “But this is something we specialize in. We helped numerous individuals with frozen accounts in Switzerland last year.”

Weiss was one such client.

“I needed someone to help me take care of it urgently,” Weiss says. “It took three weeks to finish everything with Taxes for Expats, and they provided a letter of certification which I took to the bank, and they unfroze my account.”

While the initial compliance shock took him by surprise, Weiss now says that the process of staying compliant is fairly straightforward: he simply files his annual returns with Taxes for Expats who in turn make sure everything is sorted.

Luckily for Weiss, the IRS recently announced a new amnesty programme allowing delinquent American expatriates to get up to date on their FBARs without penalty.

“If you are still in a state of noncompliance, now is the time to act by taking advantage of the Streamlined Filing Procedures,” Zemelmansays. “We’ve helped hundreds of customers since the programme was announced.”

The programme includes filing three years of delinquent tax returns and up to six years of missing FBARs.


IRS photo: Shutterstock

“However, time is of the essence,” Zemelman says, noting that Americans who have already received multiple non-filing notices will have slimmer chances the longer they wait.

“There is nothing permanent at the IRS,” Zemelman remarks. “The IRS uses carrot methods all the time, but this is the fifth programme of its type. Will the next one be better or harsher? There’s no way of knowing.”

The current amnesty programme was introduced during the summer of 2014, but there’s no telling how long it will last. For those who may not have been aware or up to date on their US tax obligations, the time to act is now.

“It’s a hassle-free process,” Zemelman says. “You provide us with an overview of your financial situation, and we prepare and file the return.”

Now that he understands the laws and precisely what is expected of him, Weiss said he is not resentful of the new regulations. But he does wish he had known earlier.

“It was scary,” he says. “People should be aware of FATCA and deal with it proactively so they don’t have to go through what I did.”

This article was produced by The Local and sponsored by Taxes for Expats.

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Switzerland: How to get money back when cross-border shopping in Germany

Crossing into Germany to go shopping is usually cheaper - and that’s before you add the tax savings. Here’s how you can claim back tax when shopping in Germany.

Switzerland: How to get money back when cross-border shopping in Germany

There are a range of reasons why most things are cheaper in Germany than in Switzerland. 

While there are some exceptions to this – the most notable one being petrol – generally speaking you pay a premium on goods purchased in Switzerland. 

EXPLAINED: Why is Switzerland so expensive?

If you shop in Germany, you can also save on VAT, which is generally 19 percent and added to most goods. 

Here’s what you need to know. 

What are the tax rules for shopping in Germany? 

Residents of Switzerland, as a non-EU country, do not need to pay VAT in Germany on purchases over 50 euros. 

Your country of residence rather than nationality is important here. 

Therefore, a German living in Switzerland and shopping in Germany does not need to pay the tax. 

A Swiss living in Germany however would need to pay the amount. 

Importantly, you need to physically be in Germany when you make the purchase. 

In order to qualify for the tax exemption, you must bring the goods back to Switzerland with you. 

The specific rules for this are laid out by German Customs here, but they need to be either in your carry on or checked baggage, or in a car that you are travelling in personally. 

These rules are to ensure people are buying the goods for themselves rather than intending to sell them on. 

What kind of goods? 

Goods bought in Germany and taken back to Switzerland are exempt from VAT. 

You will generally however be required to pay tax on services rendered or completed in Germany. 

For instance, bus or train tickets in Germany, restaurant bills, hotel stays, massages etc. 

There are also a range of rules which apply to vehicles. 

If you are getting your car repaired, filling up with petrol, affixing bumpers, mirrors or other additions or even getting a car wash, you will need to pay VAT. 

How do I get the money back? 

Unfortunately, you do not get a discount at the place of purchase.

Instead, you need to claim the money back after you have purchased the product on which you paid the tax. 

In most large stores or shopping centres, you will be able to do this on site. 

You need to have a copy of the receipt and fill in the VAT refund form (Ausfuhrschein) with your name, address and Swiss residency permit number. 

You can get one of these forms at larger stores or you can download it and print it here. 

You will need to do one for each invoice. 

Once you have done that, you can take the completed form to the German customs office (Zoll), which you can find at most border crossings and get the paper stamped. 

Then, you need to return the paper to the place of purchase, where they will issue with a refund of the VAT. 

Some stores require you to return after three months, some six and some 12, so be sure to check the store policy. 

Note that some online stores will automatically deduct the VAT if you have a Swiss delivery address. 

Cost of living in Switzerland: How to save money if you live in Zurich

One thing to keep in mind however is that Switzerland charges its own VAT, which is either 2.5 percent or 8 percent. More on that below. 

What’s with all this paper? 

For anyone who’s spent even a few hours in Germany, the country’s reluctance to embrace digital methods of payment and record keeping is clear. 

While cash remains king in many stores and restaurants, claiming back money from shopping in Germany is also a paper-heavy endeavour. 

Fortunately for people not so keen on paperwork, a change is afoot – although exactly when it will take place remains unclear. 

In February 2022, the German government announced it had kicked off a project to make a digital export certificate possible. 

In addition to saving time and paper, the government indicated it expected to save around 6.2 million euros in personnel expenses as around 100 customs officers are currently assigned to the Swiss border alone. 

No deadline has been given for when the change will come into effect. 

Cost of living: How to save on groceries in Switzerland

Swiss customs rules

When bringing goods into Switzerland, you will need to pay VAT if the amount exceeds 300 francs. 

While border patrols are rare, those who make a habit of exceeding this amount – even if it is for goods for personal use – run the risk of falling foul of the authorities. 

There are several different rules in place for bringing in different items, including meats, cheeses and alcohol. 

The limits for each of these items can be found here. 

Keep in mind that while the CHF300 applies now, Switzerland is set to reduce this to CHF50 in the future – although final approval of this has not yet been secured. 

Tax change: Switzerland to introduce 50 franc limit on cross-border shopping

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