US nationals living in Bali, do you want the bad news first?
Uncle Sam is getting tougher on those who are hiding assets
offshore. Penalties for willfully hiding those assets will
be rising to a minimum of US$100,000 or half the value of
the account or investment, whichever is the greater. A spell
in one of Uncle Sam’s correctional institutions is also
possible on your next visit to the USA if tax evasion is involved.
The assets may include securities accounts, funds, life insurance
contracts and any offshore bank account, including a local
account in Indonesia.
How could Uncle Sam find out?
There are now an increasing number of tax treaties between
countries and a far greater degree of cooperation and exchange
of information. This is not only to enable governments to
increase their tax revenues but it is also part of the war
against money laundering and terrorism. Expat Americans are
perfectly at liberty to invest offshore, but unlike as is
the case for most other nationalities, the holdings must be
reported.
After that, is there any good news?
First of all there is time, if you act swiftly, to mitigate
any damage. But April is ‘tax-time’ for Americans
so the time is limited. File your 90-22 form promptly to avoid
the above penalties from applying to you. Seek early professional
advice if you have been hiding assets. On the positive side,
capital gains taxes have been going down, IRA contributions
are going up and electronic filing is getting easier.
Other considerations for Americans
Now we are back to the bad news! If you have children who
have not finished their education college costs are now estimated
at over $30,000 a year and are rising at twice the level of
inflation. Also, to provide yourself with an adequate income
in retirement you are probably going to have to build up a
much greater asset base than you are currently contemplating.
The good news is that there are tax advantaged savings plans
that can help you on both counts – and they are all
Uncle Sam friendly! You may also have scope to reorganize
retirement plans from previous employers to your benefit.
If you no longer have access to employer sponsored plans there
are other ways to save on a pre-tax or tax-deferred basis.
What about non-American expats?
Most of us are fortunate in that our home countries allow
us to invest freely offshore without any need to report or
pay taxes to our home governments. It is a different story
of course once we return to our home countries and we need
to be aware how our respective countries will treat offshore
investments and plan accordingly before our return. The secrecy
barriers are breaking down here also. Offshore banks in certain
jurisdictions, including the Isle of Man and the Channel Islands,
will now have to deduct withholding tax or report interest
earned to European governments. No problem however if you
can demonstrate you are living outside Europe. As for taxation
in Indonesia here too the government is making every effort
to increase revenue and there have been some high profile
cases of penalties imposed on foreigners evading taxes. This
is a complex area and advice from a local tax expert is recommended.
Acknowledgement
Information and advice for this article has been provided
by Jessica Cutrera who heads our group’s US special
investment centre. Jessica is based in Tokyo but regularly
visits other Asian locations, including Jakarta and Bali.
Colin Bloodworth is a senior adviser with Financial Partners
International. The views expressed are his own. No investment
decisions should be taken without proper advice. If you have
any questions you may contact the writer at 021 520 8099 or
colin.bloodworth@financial-partners.biz
