The bad news
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.
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 firstname.lastname@example.org