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FATCA in Panama
FATCA in Panama. There is a U.S. law called The Foreign Account Tax Compliance Act (FATCA) that prohibits U.S. banks from providing banking correspondent services like wire transfers in US Dollars (USD) to non-U.S. banks, unless they disclose account information of their U.S. citizen customers to the IRS.
Nearly every bank in the world handles wire transfers in US dollars, which requires using a U.S. bank as a correspondent (intermediary) to receive the funds and then transfer them to their destination bank accounts around the world. Under FATCA, Non-U.S. banks cannot use this service, unless they agree to disclose all banking information of their U.S. account holders. As a result, 99% of all global banks comply with FATCA.
A few years ago, when global media stories appeared about the enactment of the FATCA law, many banks around the world protested and some vowed to close all U.S. citizens’ accounts. The smoke has settled and most of those banks are now complying with FATCA in order to be able to handle USD funds.
Yet, some banks closed all of their U.S. citizens’ accounts because complying with FATCA takes up too much time dealing with extensive and expensive reporting requirements. As a result, they simply opted to not deal with U.S. clients and therefore have no reporting.
In Panama, U.S. citizens report that opening a bank account here requires more due diligence and filing additional paperwork with the U.S. Treasury Department and the IRS, and while many banks do not accept U.S. citizens, there are a few which allow them to open accounts.
For U.S. citizens failing to comply with FATCA subjects them to severe penalties, high fines, and even criminal prosecution. The best advice is to “report everything” to the IRS and not to hide anything.
The few U.S. citizens who decide not to open foreign bank accounts sometimes end up with cash hidden in their homes in a safe or in private safety deposit boxes One legal exception is for U.S. citizens to purchase foreign real estate. The IRS states that taxpayers owning foreign real properties in their personal name are exempt from reporting requirements.
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