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US taxes and FATCA: ‘The time for hiding is over’

FATCA. Since July 2014, the five-letter acronym has instilled dread in the hearts of American expats all around the world.

US taxes and FATCA: 'The time for hiding is over'
Photo: Flickr/Pictures of Money

“The Foreign Account Tax Compliance Act (FATCA) requires banks to report information to the IRS regarding all financial accounts held by American clients,” Ines Zemelman, expat tax specialist and founder of Taxes for Expats, tells The Local. “The age of financial privacy is over.”

American citizens must report their worldwide earnings and assets to the IRS no matter where in the world they live.  With the implementation of FATCA, expats who have spent years avoiding this uncomfortable truth are being reminded of it — as well as being punished if they don’t comply.

This development has led to many foreign banks trying to track down their American clients – and in some cases, lessen their own burden by simply refusing Americans service.

Many expats have begun to receive a ‘FATCA Letter’ from their bank requesting certain information about their US tax status (and asking them to complete either Form W-9 or W-8). The letter usually offers a brief explanation of the FATCA legislation that requires the bank to share your name, address, and other personal details with the American tax authorities – the Internal Revenue Service.

But what if you're not compliant? Some expats choose to ignore the request – but this high-risk approach is likely to quickly bring about a negative outcome.

Your bank might simply close your account, or even freeze your funds. Alternatively, your details may be forwarded to the IRS anyways and you may end up with a big red flag by your name.

“If you are not presently compliant with US tax laws, the time for hiding is over,” Zemelman says. “Your goal should now be to make the appropriate IRS voluntary disclosure to come clean and resolve your undisclosed foreign accounts.”

For expats who are not yet compliant with US tax filings, including submitted FBARs (Foreign Bank Account Report) and tax returns, Taxes for Expats recommends three steps.

“Respond to the bank immediately and tell them you are in the process of filing,” advises Zemelman. “Ask to set up a timeline or get an extension.”

Next, contact a professional US expat tax preparation company such as Taxes for Expats.

“If you were not working against the clock you could try to do it all on your own – but it's not something we'd advise if the bank is already on your case,” Zemelman remarks.

Finally, make sure to take advantage of the Streamlined Filing Procedure, which can help you become fully compliant without the risk of penalties. The procedure requires completing three years of tax returns and six years of FBAR, and will put you in the clear once and for all.

Think your bank won’t know you’re American? You’re probably wrong, Zemelman warns.

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.

“Your birthplace is shown on your passport – even if it’s not a US one. Likewise, a client may have transferred funds to the US or may have an American address,” Zemelman says.

If banks fail to comply and report your information to the US, they get slapped with heavy fines – so instead they opt to play nice with Uncle Sam.

“If you are an American with an overseas bank account, it is likely that your bank has already asked or is going to ask about your US compliance status,” Zemelman says. She advises US citizens outside the US to plan for this – as foreign banks have essentially become enforcement agents of the IRS.

So what do you do when the bank in your country of residence starts sniffing around and asks about your US tax compliance status? It doesn’t have to be a nightmare, Zemelman says – if you handle it right.

“Don’t wait for the enforcement division to find you,” Zemelman concludes. “Come forward and fix your US tax situation first.”

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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