The Foreign Account Tax Compliance Act (FATCA) is causing disruption and confusion all over the world, including here in Japan.
Like it or not, as part of Japan's agreement with the U.S. to join FATCA, banks in Japan are now required to hand over information on U.S. taxpayers (U.S. citizens or green card holders, or those holding certain kinds of investments in the U.S.) to the Internal Revenue Service (IRS).
While FATCA was introduced as a long-term strategy for more capital control and increased reporting requirements and transparency for Americans trying to hide assets overseas, it includes non-resident Americans, who in most cases need to open bank accounts for routine purposes such as receiving salary and paying rent. You might have received a letter from your bank in Japan recently asking if you were an American citizen or green card holder. While actual filing requirements differ somewhat for eligible non-residents (e.g. minimum threshold amounts), the basic procedures bank and personal reporting requirements are the same.
Many foreign banks and financial institutions around the world are opting to turn away American clients rather than accept the increased paperwork burden of FATCA's reporting requirements, but so far banks in Japan seem to be quietly complying - or at least trying to. With the hundreds of millions of bank accounts held in Japanese banks - most of which were opened with paper-based forms in Japanese - it is likely that at least some portion of this data is not yet digitalized and in a format easily submitted to the U.S. authorities.
With or without FATCA, both resident and non-resident Americans are required to file a U.S. federal income tax return every year, and the procedure can be rather daunting. Filing - or not filing - returns pretty much guarantees a few sleepless nights. What’s more, the U.S. tax code changes frequently, making it rather difficult to latch on to a particular method. The filing deadline is April 15, but non-residents enjoy an automatic two-month extension to June 15 (this does not apply to taxes owed, only the filing date).
Another important point to remember: Unbeknown to many expat non-tax filers, the foreign earned income exclusion and housing exclusion are not always an option - both can be potentially disallowed if the IRS contacts delinquent filers before they have a chance to submit returns for prior years.
As reporting requirements (and penalties for not filing) are constantly changing, it is important to find a professional tax preparer who will be able to wade through the ever-increasing complexity of tax filing for Americans living abroad.© Japan Today