(NOT) born in the US, never lived, worked or visited the US. Does that mean you still have to file taxes?
Yes you do if you’re considered a US person. You have to file taxes, based purely on your American citizenship. Whether filing will result in you paying actual taxes in the US depends on personal circumstances, and double taxation treaties made with the country in which you live and or work. Not filing taxes in the US is a criminal offence.
America is the only first world country in the world, that enforces a tax duty on American citizens, wherever they live or work (with or without passport, green card holders, and others). On this page, we will shortly explain the law, the practical consequences and the emotional impact it might have on the people involved.
When did this all start?
The American worldwide tax duty is in effect since around 1860. There was a civil war going on at the time and many people tried to avoid conscription by fleeing abroad. In order to punish and discourage these people, a law was passed that would oblige Americans to pay taxes, even when they lived abroad. After the war the law was kept. It was the idea that there should be a price to pay, for the honor and privileges that come with an American passport. The law is already in effect for over a 100 years, but many people did not know about it (or did not care).
Why is this now becoming an issue?
President Obama introduced the FATCA (Foreign Account Tax Compliance Act) in 2010, in order to track down Americans that were keeping bank accounts without reporting those to the tax authorities. This law forces all financial institutions (banks, insurance companies, pension funds, etcetera) across the globe to provide all information regarding American clients to the American government. Failure to comply will result in exorbitant fines. Further agreements were made with foreign governments in order to make sure that the law was being applied. (see: FATCA explained in four minutes).
Americans living abroad
American people living in America, who failed to report their foreign bank accounts, could expect high fines. These could rise to sometimes up to hundreds of thousands of dollars. Also they were being charged with a criminal offense. Americans living abroad are now also being actively investigated (often for the first time). Fortunately, the American government and her Tax Authorities (IRS) do make allowances for this group. Americans living abroad, who were unaware of this law, have the one-time option to file their taxes via a special amnesty program. This prevents fines and is called streamlined procedure.
This cannot be true?
We, the founders of Americans Overseas, are born in the Netherlands and received our passports via our (American) mother. When we heard about this law for the first time in 2012, we did not believe it was true (this cannot be happening). We felt anger (why are they allowed to do this), fear (will I be fined or get into trouble) and panic (what should I do?). Unfortunately, it’s true that there is indeed a global American tax duty. We could not find any information when asking the local government. We got told to contact the IRS by the consulate and the IRS itself proved impenetrable.
Information on tax liability
We therefore started this initiative to help people by providing correct information, preventing unnecessary panic and offering the help of a network of paid professionals, with no strings attached. We have also become the discussion partner on this subject of the Dutch House of Representatives. We still have a long way to go if we want to change the process itself. If we even manage to do so. It might be comforting to know however, that in 90% of all cases that we receive, the solutions are straightforward and do not lead to paying taxes to the United States.
Almost everybody we speak to, who heard of this law for the first time, ends up participating in the ‘streamlined procedure’. This is an amnesty procedure of the IRS which prevents you from being fined. This procedure has been around for a while and could continue for years to come. Or it could be terminated by the IRS tomorrow. (The IRS tends to communicate in a pretty aggressive way, making people nervous).
We used to have a lot of questions and we can imagine that you do too. Many of the questions we had, have been posted to our knowledge centre. Examples would be:
When am I liable to pay taxes, do I have to pay extra taxes, can’t I simply provide my passport, I received a notification from the bank. You can always call us for a consult (free of charge) or to talk to a US tax specialist.