In Taiwan, Foreign Account Tax Compliance Act (FATCA) is having an impact on people with US-Taiwan dual citizenships. FATCA is introduced because the US government wants to levy taxes on overseas residents. No matter where they are, the US is collecting taxes from the global income of its citizens and permanent residents. The Internal Revenue Service (IRS) levies taxes on overseas profit-seeking incomes. Therefore, since 2011, if companies or individuals (including residents defined by tax laws) meet the following circumstances, they need to declare their incomes. In other words, from 2012, the "specified foreign financial assets" of the year before, or 2011, must be declared.
The Threshold of Declaration
- If the total value of the specified foreign financial assets exceeds USD50,000, the taxpayer needs to file the 8938 form. IRS in the detailed rules classifies the threshold of declaration. For taxpayers living in the US, the threshold at the end of the year is USD50,000 (USD75,000 midyear); husband & wife declaring jointly doubles. For taxpayers living overseas, the threshold for individuals at the end of the year is USD200,000 (USD300,000 midyear); husband & wife declaring jointly doubles.
- If IRS finds undeclared income or undeclared foreign financial accounts, the taxpayer will face serious consequences. These consequences may not only include paying extra taxes, but also going to jail. The penalty for not declaring is USD10,000. The taxpayer who has received a notice from IRS but does not declare within 90 days will be penalized USD10,000 monthly, up to an additional penalty of USD50,000. Statute of limitations is three years. But, the statute of limitations for the taxpayers who short declare offshore income over USD5,000 is six years. The fine for inaccurate declarations is 40% of the unpaid tax. The fine for false declarations is 75% of the unpaid tax. There may also be criminal responsibilities.
Definition of Offshore Assets
- Financial assets, stocks, funds, company equity shares (including partnership companies)
- Insurance products or annuities with cash value
- Investment institutions such as hedge funds and private equity funds
- Financial instruments issued by offshore financial institutions, such as trusts, investment portfolios of retirement accounts, etc.
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