Foreign banking?
Panama is still good as of 2020.
FATCA has been a popular topic among American expats living abroad and foreign financial institutions for the past 3 years. As of November 2013, 10 countries have signed intergovernmental agreements (IGAs) with the USA. Moreover, the USA has been in negotiations with over 80 countries that are interested in joining the FATCA circle. Although, Panama has not signed any FATCA IGA agreement, Panama is exploring its options. Panama FATCA is on its way so American expats living in Panama should take actions before facing severe consequences.
Panama FATCA (Foreign Account Tax Compliance Act) and American Expats
What does Panama FATCA mean for American expats living in Panama?
FATCA has been introduced to fight international tax evasion. The positive response from foreign countries has been overwhelming. As a result of it, the USA has extended the start date of FATCA until July 1, 2014. “Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe, before withholding begins,” mentioned Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack.
Panama is not standing on a side. For many years Panama was called the “Switzerland of the Americas” for its banking privacy laws. Moreover, Panama was on the OECD’s grey list for a long time. However, President Martinelli introduced many changes. Since his presidency many steps have been taken to improve the image of Panama in the global community. Specifically, in 2011 he signed a tax information exchange agreement with the USA. Per this agreement, the authorities of Panama must cooperate with US investigators even on civil matters. Currently there is no Panama FATCA agreement. However, as of September 2013, the government of Panama has been working on a draft proposal for Panama FATCA. “The Panama talks mark a significant step for FATCA implementation because they demonstrate Treasury officials are going to the heart of the offshore tax evasion problem”, said Alan Granwell, a former Treasury official who is currently with a law firm DLA.
What should American expats with accounts in Panama do to comply with FATCA?
The FATCA and FBAR forms have a lot of similarities (see What is FBAR), however, there are multiple differences.
Starting with 2011 tax year, American expats living in Panama must file FATCA form 8938 by the due date of an expat tax return as long as they meet the FATCA filing requirements.
Per the FATCA, Americans living in Panama have to file form 8938 if the aggregate value of specified foreign financial assets exceeds $200,000 (last day of the year) or $300,000 (anytime during the year). This filing threshold is much higher for couples that file a joint return.
American expats must remember that they have to meet one of the tests to qualify for a higher threshold:
To qualify for this higher threshold, Americans living abroad must meet either the “physical presence test” or “bona fide residence test.” American expats are not required to file form 2555 with form 8938 to qualify for the above threshold.
If American taxpayers reside in the USA, then they must file the FATCA form if the aggregate value of specified foreign financial assets is over $50,000 (last day of the year) or $75,000 (anytime during the year) for taxpayers that file as “single” or “married filing separately.” This is one of the key misunderstandings among American expats and taxpayers in general.
Which penalties will American expats in Panama be subject to if they do not file the FATCA form?
A starting penalty is $10,000 failure-to-file fee. However, this amount will be go up by an additional $10,000 penalty for each 30 days within 90 days after the IRS sends a notice regarding a failure to file Form 8938. The second round is $50,000 for each failure to file. Criminal penalties might be levied too.
American expats living in Panama should check the websites of Treasury and of Panamanian government to get the latest updates about Panama FATCA.
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