Considerations to Take Into Account Before Investing Offshore

Many people benefit from having offshore bank accounts held at foreign financial institutions. Those who travel frequently or who live abroad may want a bank account at a foreign financial institution in a country where they work or do business or travel. If you want to diversify and have some of your assets held in currencies other than dollars, putting your money into a foreign bank also makes a lot of sense.

Unfortunately, opening an offshore bank account or investment account can create a lot of complications for you. That's because offshore investing has developed a reputation for being a method of hiding assets to avoid taxes. A number of rules and regulations exist to try to prevent tax evasion, and international crackdowns on offshore tax evasion have led to new and burdensome requirements in recent years.

A Boston international tax attorney can provide insight into what you would need to do in order to comply with the law while investing in a foreign financial account and can also offer assistance if you fail to fulfill your obligations associated with your offshore investments. You should contact an attorney before opening an account when possible to avoid potential legal problems but can get help exploring options at any time if you discover your existing offshore account is not compliant with IRS rules and regulations.

Consider This Before Investing Offshore

Before you decide to invest in a foreign financial account, you need to be aware that you will likely have reporting requirements to fulfill.

Because the U.S. requires all citizens to pay taxes on income even if income is earned in a foreign jurisdiction, there's a requirement that you report offshore investment income on your tax return when you file each year. However, this is just the start of your obligations.

If your account balance at an offshore financial institution totals above $10,000, you are going to be required to submit annual Reports of Foreign Bank and Financial Accounts (FBARs). If your account balance totals above $50,000, the Foreign Account Tax Compliance Act also mandates the submission of an additional form, Form 8938, to disclose the account.

Many people open offshore accounts in the name of corporations, LLCs, or other entities. However, it's important to realize these reporting requirements typically apply even if you simply have signature authority over the account. In other words, if your “corporation” owns the account but you largely have control over it, you will still be subject to reporting requirements including complying with FATCA and submitting Form 8938 and submitting your annual FBARs.

It's important to make sure you're in full compliance with the rules because otherwise there is a good chance that you will end up facing legal problems. Financial institutions are required to provide certain disclosures and information to U.S. authorities including details about U.S. affiliated accountholders. Banks have been very cooperative with U.S. officials, particularly after many banks paid substantial penalties to avoid criminal sanctions for helping to facilitate tax evasion, so your bank will probably tell the IRS about your foreign accounts even if you don't.

Boston international tax attorney Kevin Thorn can provide you with help understanding your obligations if you're thinking about opening an offshore account. Our team will also assist you if you have an offshore account and haven't been in full compliance with reporting rules. To find out more, give us a call today.

For a consultation, contact Kevin E. Thorn, Managing Partner, at ket@thornlawgroup.com or (617) 692-2989