Episode Summary
In this episode of The Expat Files, Johnny Mueller discusses the increasing difficulty for expats to transfer money out of the United States due to new regulations under the FATCA (Foreign Account Tax Compliance Act). He explains that starting in 2014, the U.S. government will withhold 30% of any wire transfer from American citizens to foreign banks that do not have an information exchange treaty with the IRS. Mueller highlights that this is part of a broader effort by the IRS to monitor U.S. citizens who have moved abroad and are conducting business or making investments in foreign countries. He also notes that some banks have already started withholding the 30% even before the official implementation date, which has caused confusion and frustration among expats.
Mueller then discusses the impact of FATCA on expats and foreign banks. He explains that the law requires foreign banks to withhold 30% tax on certain payments from U.S. persons, even if the bank has not signed an IRS agreement. He highlights how this has affected banks in places like Belize, the Bahamas, Liechtenstein, and Austria, which have had to adjust their privacy policies. Johnny also notes that while privacy and anonymity are not entirely dead, they are significantly reduced in many jurisdictions. He mentions that the law has caused chaos and increased paperwork for foreign banks, leading to potential mistakes in withholding. He also touches on the broader implications of FATCA, including its impact on U.S. corporations and the challenges expats face in managing their finances abroad.
In another segment, Johnny discusses the implications of FATCA on expats and their assets. He explains that if an expat's name is on a corporate or personal account with a foreign bank that has signed an IRS information exchange agreement, the bank will disclose the account details to the IRS, including account numbers, balances, and transaction history. This makes the expat a target for FATCA's 30% withholding tax. Johnny emphasizes that expats should consider legal ways to avoid this, such as using offshore entities, but warns that even these methods may not fully protect them. He also stresses the importance of moving assets and personal belongings out of the US before January 2014 to avoid complications. Additionally, he promotes his expat wisdom seminar as a resource for expats seeking advice on navigating these issues and living successfully abroad.
In a different segment, Johnny discusses his interactions with long-term expats who have a different perspective on the 'gringo advantage'—the idea that expats can take advantage of Latin American countries by identifying business opportunities. He mentions that many expats, particularly those with a do-gooder or evangelical background, find his views repugnant, as they believe the gringo advantage is exploitative rather than beneficial. Johnny acknowledges the criticism and responds to an email from an expat named Abe, who accuses him of promoting a harmful worldview. Johnny defends his stance by outlining four choices for expats in Latin America, emphasizing that the gringo advantage can be positive if expats bring first-world efficiency, environmental awareness, and better services. He also critiques the environmental and social practices of locals, suggesting that expats are better stewards of the region. The segment ends with Johnny responding to Abe's email, defending his position and mocking the idea that he gets his views from Glenn Beck.
Finally, Johnny responds to a listener's question about investing in CDs (Certificates of Deposit) in local currencies versus US dollars in Latin American countries. He explains that while local currency CDs offer higher interest rates (up to 12%), they come with significant risks due to the long-term depreciation of third-world currencies against the dollar. He advises against investing in local currency CDs, calling it a speculative move. Instead, he recommends investing in US dollar CDs at reputable banks, emphasizing the importance of researching and selecting the top three most solid banks in the country. Johnny also highlights the lack of transparency in Latin American banking systems and suggests consulting a local lawyer to identify trustworthy banks.
Topics
FATCA (Foreign Account Tax Compliance Act), Expatriate financial regulations, U.S. tax compliance for expats, International banking and wire transfers, IRS monitoring of U.S. citizens abroad, Privacy and anonymity in foreign banking, Impact on expats and foreign banks, Compliance challenges for foreign banks, U.S. corporations and tax avoidance strategies, FATCA implications for expats, Legal ways to avoid FATCA withholding, Importance of moving assets out of the US before 2014
Chapters
00:00:00 Opening 00:01:21 The New Rules for Expats Leaving the U.S. 00:02:02 Understanding FATCA and Its Impact 00:03:33 Early Implementation of FATCA Regulations 00:06:13 FATCA and the 30% Withholding Tax on Foreign Banks 00:06:54 Austria's Spar Buck Accounts and FATCA Compliance 00:08:47 FATCA's Goal: Information Gathering on U.S. Persons Abroad 00:12:29 FATCA and Expats as Targets 00:13:00 Loopholes and Legal Ways to Avoid FATCA 00:13:09 Urgency to Move Assets Out of the US 00:14:22 Promotion of Expat Wisdom Seminar 00:18:21 Johnny's Critique of the Gringo Advantage and Do-Gooders 00:19:43 Abe's Email: Criticizing Johnny's Views on the Gringo Advantage 00:20:55 Johnny's Response to Abe: Four Choices for Expats in Latin America 00:25:17 Listener Question About CDs in Latin America 00:25:42 Interest Rates on CDs in Latin American Countries 00:26:40 Risks of Local Currency CDs and Recommendations
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now as I wonder My thoughts ever straight Hi everybody I'm Johnny Mueller and you're listening to the expat files Living in Latin America the show that tells you what it's really like to live work play and or retire in Latin America I tell it just like it is so let's get started Today I have to start out with some bad news It seems that your uncle Sam is making it harder and harder for you to become an expat He absolutely doesn't want you to leave the good old USS of our obey He wants to keep you in that pan with all the other cows so that you're easy to find and he can milk yet
[00:50] Well, and when citizens wake up to the fact that it's no longer good to be a milk cow and uncle Sam land And he decide they want to leave that doesn't sit very well with big brother and that puts your uncle Sam in a panic Can't leave that barn door open now Can we so they're slamming the door more and more each day and each month until you just won't be able to accomplish Getting your ass and your assets out of the first world like you were easily able to do just a few short months ago Now there is a slim little time window of perhaps a few months where you can still do that But still not that easy and by January 1st 2014 looks like everyone in the first world who wants to transfer monetary assets out of the first world to a foreign bank account that is a personal account in a foreign bank or to a trust or foreign corporation that you have some holdings or ownership or
[01:40] Participation in well if you do your wire transfers after the first of January 2014 a little more than seven months from now You're likely to find that the bank that initiated your wire transfer in the States will withhold 30% of your money, and if they do you'll have a hell of a time ever recovering it So if that happens you can figure generally that you can kiss that 30% Goodbye, those are the new rules under the US FATCA legislation FATCA meaning the foreign account tax compliance act Which Congress sneakily buried deep into a 1600 page jobs bill called the higher act? Hire I mean what politician in his right mind wouldn't vote for a higher act sounds innocuous enough, right?
[02:25] So that's why it got voted on so easily rapidly and without much discussion at all So what does it all mean? Well first world banks by law are forced to withhold 30% of every wire transfer from an American citizen in the US to a foreign bank And they'll grab that 30% if the foreign bank or offshore financial entity does not sign an information exchange treaty with the IRS Stating that they're gonna give up every US citizen and all of his or her account information Whether it's a personal account or a corporate account doing business at that foreign bank or financial institution And now you're all thinking wow that sucks, but it's still May 2013 so that'll give you a good
[03:13] Seven or eight months to get your feces together to cash out or liquidate or do your wire transfers or whatever's necessary To get your assets out of the country that'll work you got seven months before it actually kicks in right well in a word Not quite well that was two words wasn't it anyway. I'm here to tell you that as of last month Already some first world banks are withholding that 30% Even though they're not required to do so till January 1st 2014 and how do I know that well certain expat Businessmen that live down here Latin America have told me personally that since a month or two ago every so often a first world wire Transfer will come through with 30% exactly Lopped right off the top. There's really no recourse
[03:59] There's no one to complain to and like one expat businessman told me there's just no rhyme or reason to it Some transfers come through perfectly fine and others with a 30% lopped off. So why the fat Galois anyway? What's the purpose of it? The IRS is trying to grab that 30% Thinking that a lot of money that's going out of the United States and where transfers is pre-tax money They know a hell of a lot of money that's been exiting the states has slipped by the tax authorities In fact, that's why it's all leaving the states in the first place because everybody hates the tax man But the fact is it wasn't such a huge deal up to now Sure, money's always been trickling out of the states looking for kinder gentler places to land But only in the last two or three years has the smart money been really galloping out of the states to much more welcoming
[04:47] Much more private and much less restrictive foreign banks In fact, it's turned into a pretty huge problem for the IRS and there's no end in sight and thus the new strict regulations and currency Controls, but that fat Galois is not just about collecting or withholding 30% on Transfers going out of the country that they think are pre-tax dollars It turns out the real reason for the fat Galois is to collect as much information as they can on US citizens and expats who have left the country and who are doing business or Making investments in foreign lands. It's just another heavy-handed big-brother move aimed at monitoring every US citizen Directed at citizens who have voted with their feet and who have left the country
[05:32] So the way it works out if your bank in Honduras or Bolivia does not sign that IRS tax information Exchange agreement then if you send a wire transfer from your bank in Cleveland after January 1st 2014 30% will be automatically withheld. There I go. I said the C word at the five-minute mark That means no more this show. Anyway, this fat go withholding tax business can get really confusing now consider this suppose You're a German living in Chicago and you have a bank account there in a business and you send a wire Transfer to a bank in Peru. Well, guess what if that bank in Peru did not sign the IRS information exchange agreement then 30% will be withheld from that Germans bank account in Chicago up in the states now as you might imagine there's nothing fair about that at all because
[06:19] He's not a US citizen But it doesn't matter if the foreign bank receiving the funds has not signed that IRS agreement The 30% withholding will apply and that's why and you have to get this now All foreign banks are now falling in line even the ones that had heavy bank secrecy like Belize the Bahamas Liechtenstein Cayman Islands, etc Even Austria which had that totally secure private and anonymous passbook account called a spar buck account Which was truly just a plain old numbered account with no one's name or information recorded anywhere at all Well this week they too have caved in yes, they'll still have spar buck accounts, but only for Austrian citizens They'll no longer be available to foreigners So bottom line with the FATCA Act the IRS has stripped away a level of privacy that had been one of the great
[07:10] Advantages to banking in a foreign bank, but that doesn't mean privacy and anonymity are dead not by a long shot Not down here in Latin America But you'll have to come down to my Latin American seminar in June to find out certain details on the subject and what you might Call loopholes that I just can't talk about on the air Anyway, can't you see the mess and the chaos being caused by this FATCA legislation worldwide? Isn't it completely obvious by now why foreign banks do not want US citizens as customers way too much paperwork Way too much hassle and too much pain for so little gain, you know In fact, it's been claimed that the US Treasury and the IRS are gonna have to add 50 to a hundred thousand new government jobs just to oversee and monitor this new poison pill that big brother is concocted
[07:59] Now if you're wondering what kind of payments fall under that 30% withholding law It says here on the US Department of Treasury Website in the question-and-answer segment in more or less simple terms, which is amazing for a government doublespeak It says a Withholdable payment of 30% can be levied on a US source income that comes from annual or periodic income gross proceeds from the sale or disposition of property that can produce US source income or dividend income regular wage income interest payments dividends rents salaries wages premiums and annuities Which covers just about any US income source which can be transferred to a foreign bank or offshore financial entity
[08:45] So basically if you look at it closely the primary goal of this FATCA law is to gain information about US persons living or doing business abroad and The point is your US Bank or financial institution up there will not withhold the 30% if your offshore bank or foreign entity signs that IRS agreement and I assure you they have already or they will by January 1st 2014 now I've also been told by reliable sources inside one of the big foreign banks down here that there will be a lot of mistakes made at first any time the rules are changed and Compliance guidelines are tightened and more paperwork is generated. There will be mistakes and lots of them So in fact, there will be many cases where that 30% is withheld by mistake
[09:31] But because all the rules and regulations are not even set in stone yet If it happens to you and your wire transfer, even though your bank has complied fat chance You'll get that 30% back and remember this nearly all banks worldwide will comply and because of that after the whole scheme is set Into motion only a very very small percentage of transactions will have that 30% withheld Which means if you think about it the IRS big brother and Uncle Sam don't even care about collecting that 30% it's all about the account information that the foreign banks give up on you and every other American citizen that has assets outside of the US and basically like this foreign banker friend of mine told me when the subjects brought up at meetings within the bank the bankers are not at all
[10:20] Happy about the extra paperwork and reporting requirements because you see with that extra workload every foreign bank has to put on new employees just to comply which for one thing is gonna push up bank charges it has to and That my friends is why it's so difficult to open up a personal bank account in a foreign country these days and get this all The paperwork coming from foreign banks to the IRS in the States has to be in the format They want and in English though as of yet not all those details have been finalized by the IRS a lot of it And foreign banks are scrambling like crazy right now to get the personnel together to handle all this paperwork Since over 10 million wire transfers a day come out of first world banks and end up in foreign accounts in fact
[11:07] That's why this FATCA legislation was written to be implemented in two stages one that kicked in on January 2013 initially affecting just the new accounts opened at US financial institutions beginning on January 1st 2013 then the rest of that law kicked in for everyone else with bank accounts open before January 1st of this year Now a lot of big US corporations aren't really US corporations anymore If you check their paperwork you'll find they look like US corporations But they're registered in foreign countries like Panama Bahamas Cayman Islands, etc So if they have a large market outside the US they can easily shield that income from the US tax authorities
[11:52] And that's just what they do. For example General Motors Caterpillar tractor case and John Deere who believe it or not sell more cars tractors and earth movers to China India and Latin America than they do in the states. They pay very little US tax You see a long time ago back in the 80s and 90s big US companies like that shuffled around their corporate domiciles So they're not exactly under the thumb of a runaway IRS But many expats don't know how to play that game though a lot of them do Many expats still have an income source coming in from the states Which can put them front and center as a target for that FATCA law So the question is are there legal or quasi legal ways to get around that 30% withholding?
[12:40] Well, sure you bank with a foreign bank or entity that signed that IRS information exchange agreement Then no 30% withholding But then if your name is on any corporate or personal account Your bank is gonna give it up and they're gonna give up your deposits and withdrawals and account balances to them too Not a good deal, right? So are there loopholes other legal ways to get around that like the big boys who incorporate offshore do? Well, there's one thing certain You who are thinking about becoming expats better get your ass and your assets out of the US by January 2014 then you won't have to stress about it now a lot of people are wondering just what happens when a foreign financial Institution signs a tax and information exchange agreement with the IRS
[13:29] Well, here's what they agree to do beginning January 1st 2014 They agree to give the name address and US tax identification number of each US account holder on record And in the case of a foreign corporation or an SA corporation They have to give up the name of every substantial US owner of that corporation Which means they give up any US person that owns more than 10% of a foreign company including those famous anonymous SA corporations and the foreign bank also gives up the account numbers and the year-end balance or value and the grocery seats and gross Withdrawals or payments from that account. Yep. Big brother has set the trap So what advice do I have to offer where there's a problem?
[14:14] There's always a solution and if you want some really solid slam dunk solutions on that sticky problem and a hundred others All you have to do is come down to my expat wisdom seminar from June 23rd to the 28th And you'll be privy to six jam-packed days of pearls of advice on anything and everything you need to be a successful expat Including of course how to get your ass and assets down here with a minimal amount of trauma With of course some great tips on how to remain anonymous while maintaining a low profile Which is what all expats should strive for of course, so anyway I've got a few seats left So go to expat wisdom calm and click on the seminar link for full details and for all of you guys and gals who've sent Me emails lately telling me how much you want to come down to the event and how you're trying to juggle your schedule and the money
[15:02] And all that all I can say is it's now or never because the window is closing fast And for those of you who are hemming and hawing and are on the fence in less than a year's time come January 1st 2014 you're really gonna wish you'd made the effort Like one new expat just told me one of the guys who came down to my last seminar and never left He says you know what I'm on skype with my relatives and friends up in New York a couple times a week And it's funny the longer I'm here the less we have in common and the less we have to skype about Funny how those first world connections do fade rather fast Anyway, he says all his New York friends and relatives are rather depressed except when they talk about the good old days So it's not now today the present or the future that anyone's looking forward to
[15:50] there's not a hint of optimism anymore and what do people talk about when they get together and sit around the kitchen table is it never fails eventually they get around to talking about the good old days and Anyone with a brain up in the States knows those days are never coming back So my new expat friend says I let my friends and relatives sit around and talk about the good old days if that makes them Happy it used to be only the over 60 crowd and guys on Social Security used to talk that way But now it's everybody even people in their 20s and 30s and as for me I'm cut off from that kind of thinking I can't relate not anymore. Anyway, I'm down here now in Latin America And even though it's only been four or five months I know every day when I get up and I hear the roosters crow that for me and all the other expats down here
[16:41] These are the good old days unlike my buddies in New York I don't have to fantasize about it today tomorrow and every day hereafter are the good old days for me Except for that damn rooster at five in the morning. I hit the jackpot Okay, that said like I promised I'm gonna get to some hate mail today like I mentioned last time I've done over 255 shows here on PRN and of all the hundreds and even thousands of emails I've gotten over the last two and a half years I've only gotten maybe three real pieces of hate mail and I'm gonna read one to you right now Now I have to preface this by saying that you all know that my show is for new expats and expat wannabes To give you guys an idea of how to live work play and or do business down here, right?
[17:27] That's how it was intended anyway what I'm giving you is a real running start because I've made all the mistakes and I'm telling you how to avoid them and how To take advantage of things that I didn't even realize existed until I was down here a couple of years and figured it out Though my show is all about greasing the skids for all you expat wannabes and newbie expats down here I never intended this show to be for expats who've been down here a long time Why would they want to listen to me babble on they already know what it's like down here? They're living it and they know all about that thing I call the gringo advantage though. They might have a different name for it some might just call it damn good luck Well, it doesn't matter because it's here and it's for real and long-term expats know all about it You think they're down here secretly making plans to escape back to the states?
[18:14] Don't make me laugh and it turns out the fact is a lot of long-term expats down here Don't like what I'm saying They don't like when I tell you about the gringo advantage and about how to do business down here and the pictures I paint and the stories I tell and it seems that for a lot of long-term expats that came down here as do-gooders You know Peace Corps and Kumbaya guys and Jimmy Carter habitat for humanity types and all those other Evangelical groups that are saving souls for Jesus. Well, I'm just way too politically incorrect to break bread with those guys My soul is too stained and unsavable, you know, and luckily since I'm off the tourist trail I hardly ever run into those guys But apparently some of them listen to my show and I've been told that they're praying for me, too
[19:01] I think they're praying for me to get cancer So let me go ahead and read this cutting little email by honest Abe He's a long-term expat down here who doesn't seem to like what I have to say one bit So here goes but before I get into it instead of correcting his phrase eology I'll read it exactly like he wrote it now normally when I read emails I take to Liberty to correct the occasional twisted phrase eology and grammatical screw-ups Since my mother was an English teacher and she beat me over the head with it 24 7 But in this case, I won't make his email sound any better or more cogent than it really is I won't polish it to make it sound any better. So here goes Johnny for the record You should know that many of us expats find repugnant. You're tirelessly spreading the idea almost fashion
[19:50] Evangelical that gringo should come down and take advantage of Latin people Your beloved gringo advantage you think is a benign practice of identifying opportunities When in reality it is taking advantage of people who have different priorities than money centric gringos Many of us love the soul of Latin America and you seem oblivious to this aspect If you care at all, you should try reading about the tortured history of the region read some Octavio pause instead of listening to Glenn Beck from who it seems you have developed your understanding of things You advise that gringos in Latin America should keep a low profile yet You are becoming more and more known throughout the region as the guy with your goofy laugh and the date rape like worldview
[20:38] Signed Abe and by the way, that whole email was written in small letters with almost no punctuation at all Though any third grader would be proud and would probably get an A on it My mother'd be all over it with a felt marker Anyway, this is what I wrote back to him. Well Abe It looks like gringos have four choices and I see them as number one You can stay home and go down with the ship And if you don't believe that you can tune in to Richard Martin's PRN show He explains it infinitely better than I can number two gringos can come down with their own dough or pension or Social Security and spread the wealth around or number three Gringos could go to Costa Rica Panama, etc and live in a plastic gringle bubble pseudo paradise or number four
[21:27] gringos can come down with eyes and brains alert and wide open and easily start a winning business by just Observing the local competition and if gringos come down and do the obvious like for example Make a much better product or provide a superior service Introduce first world efficiency and or make things infinitely more sanitary more dependable less corrupt More green and environmentally sound or raise the bar any way we can then I guess I'm guilty of promoting that as the gringo advantage Now as an expat yourself, you must certainly see that wherever Latins populate They wreak total havoc on their own environment It's really pathetic yet 99.9% of Latins are totally clueless just as we were before
[22:18] Environmental laws and the proper activists with balls came on to the scene in the 60s and the 70s and beyond However, since the vast majority of expats who come down are rather enlightened compared to the average cable surfing gringo in Cleveland Oh, I said Cleveland again, didn't I but I get a mulligan on that because it's in the email anyway, and then I wrote people who become expats really are much much better and kinder stewards of their adopted countries times 10 Then the locals who wave the flag endlessly and say how they love their country as they toss Raw sewage onto the landscape by the boatload and whip out their Johnson anytime in any place they have the urge and by the way, Abe, can we call wanton landscape rape and
[23:08] Epidemic womanizing just a few of those quote different unquote Latin priorities You speak about as opposed to so-called gringo money-grabbing priorities Or are those unique Latin traits and customs just unintended consequences of massive Unplanned parenthood and yeah about Octavio pause only about one Latin and 10,000 even knows who he is or was and Practically all of them are Mexicans the ones who do remember him were forced to read his poems in school and you surely know that Latin is read a hundred times less than money-grubbing gringos do and Look how much better off Mexico is today for mr. Octovio pause
[23:56] It's obvious the Mexican cartels like the Zetas learned a whole lot from him now, didn't they? He's their role model. All right Yep, those Nobel Prizes are quite nice paperweights. Aren't they go ahead and ask mr Obama about that one and by the way, if you are an expat in Latin America How much do you pay your cleaning lady or gardener or maintenance guy? Is it 12 bucks a day the going rate or a hundred and twenty dollars a day? Like many stateside cleaning ladies would bring in Hmm. Oh Abe, let's not take advantage now Happy trails signed Johnny PS. Sorry about that goofy laugh. I was born with it So anyway, there it is a piece of hate mail. Oh and yeah, remember what he said about me taking my cues from Glenn Beck
[24:47] Well, here's what I wrote in response to that. I said away, but I forgot to tell you I do not watch any US TV at all and haven't for over 10 years. Yes. I do have cable, but I only watch the movie channels and TMC I don't watch commercial TV. I read things instead and For all of you guys and gals out there who think I'm a jerk for picking on his third-grade writing style I figure that's the least I could do after what he said about my goofy laugh. Oh And just one more thing occasionally I get emails from people saying to me Johnny You know, I looked on the internet and I check some bank websites out in countries like Costa Rica and Panama and Bolivia and Guatemala And Honduras and I found out that they have CDs in the local currency and in US dollars
[25:34] and many of those banks will give you a 10% yearly interest on a CD in the local currency and 4% interest on a CD in US dollars. What's your opinion on putting money in the local currency CD versus the US dollar CD? I mean look at the rates you get in CDs at US banks. You're lucky if you get 2%. Okay. Well, let me answer that You know, these guys are absolutely right. You can get 10% even 12% sometimes in a local currency But the minimum is usually about 25,000 US dollars Which you will have to change into the local currency and you'll lose a bit on that transaction Maybe one or two percent right off the bat, but still it's a mighty high rate of return However, you have to know that all third world currencies in the long run
[26:22] Depreciate heavily against the dollar and even though for a snapshot of the moment Brazil's currency For example has been appreciating against the dollar for the past couple of years Don't let that fool you if you look at a 10 or 15 year history of any Latin currency They've all lost a tremendous amount of ground against the dollar So as for a local currency CD don't do it, even if it's 10 or 12 percent. It's a real speculative move However, if you're going for a US dollar CD down here And by the way, I could tell you right now that some good solid banks are paying 5% on US dollar CDs But remember this most Latin countries have many many banks even small countries with 5 or 10 million people might have 10 20 30 Even 50 different banks So what you have to do is you have to investigate and pick one of the top three most solid banks in the country and put
[27:11] Your CD there and how do you know the good solid banks from the iffy ones? Well governments are weak and there's virtually no bank transparency and you can't really believe the published bank balance sheets So who you're gonna trust just ask your local lawyer He'll be able to tell you right off the top of his head the two or three most solid and strongest banks in the country Another reason you need a lawyer You've been listening to the Exped files living in Latin America coming to you each week from somewhere south of the border And don't forget you can email me on anything at all about Latin America the exped files at gmail.com See you next time