A couple of important reporting requirements are introduced in USA being submission of details of foreign accounts and filing of return for the same and in view of far-reaching effect to almost all overseas Indians who have investments in India we have thought it proper to inform you about the same. These regulations are :-
I(A). FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) :-
1. Foreign Account Tax Compliance Act (FATCA) - Form 8938, is introduced from calendar year 2011 with an intention to improve tax compliance of foreign income assets.
2. The report is to be file in Form 8938 and attached to the Federal Income Tax return.
3. FATCA applies to a US citizen ; resident alien and a Non-Resident alien who elects to be treated as resident alien if his interest in foreign financial assets exceeds US$50,000 as on 31st December or US$75,000 during the tax year.
4. In case of married couple tax-payers, these limits are raised to US$100,000 and US$150,000 respectively ; whereas for tax-payers living abroad, these limits are raised to US$200,000 and US$ 300,000 respectively for individuals and US$400,000 and US$600,000 for joint returns.
5. Specified Foreign Financial Assets :-
.01 Specified Foreign Financial Assets would include overseas bank accounts ; mutual fund investments ; investments in stocks and securities and all other overseas assets held for investments not being trade or business.
.02 This will also include investment in shares of private limited company ; insurance policies ; interest in partnership firms and / or trusts.
.03 This would include earstwhile investments in India retained prior to migration to USA as also any assets recieved by way of inheritance or partition of family assets.
I(B). FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) FOR FOREIGN FINANCIAL INSTITUTIONS:-
1. The IRS also proposes to enter into agreement with banks and financial institutions outside USA to provide the detailed investment of US citizens or resident aliens maintaining their account / investment with such banks / financial institutions from 30th June 2013.
2. The bank / institutions have been required to provide information of US citizens or US investors who have provided US address.
II. REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS (FBAR):-
1. Since Non-Resident Indian (NRI) Dr. Arvind Ahuja's ; Mr. Ashwin Desai's and others indictments for conspiracy to defraud the IRS and not filing Report of Foreign Bank and Financial Accounts (FBARs) for non-disclosure of income arising from deposits held with HSBC Bank, India and also non-filing of Form TD-F90-22.1 of FBAR for said investments, the issue of non-filing of FBAR has been hovering on almost every NRI's mind and attention.
2. Brief details and links of IRS websites as regards FBARs are :-
.01 A US citizen or resident of USA as also a USA partnership firm ; a Limited Liability Company (LLC) or trust who has financial interest and signatory authority in overseas financial investments valued at US $ 10,000 more during a calendar year.This would include earstwhile investments in India retained prior to migration to USA as also any assets recieved by way of inheritance or partition of family assets.
.02 Financial investments are defined to include mutual funds; bank deposits; bank accounts; equity investments , other listed securities; stocks and debentures; deposits and like.
.03 Financial interest in foreign accounts will include ownership as a holder or joint-holder ; proprietorship ; overseas partnership having profit sharing exceeding 50% or more ; 50% of the capital ; overseas corporation wherein more than 50% of stock value or voting power is held ; trust wherein more than 50% beneficial interest is held or any other entity wherein more than 50% interest or investment or voting power is held or wherein one holds the signing authority of say bank accounts or a power of attorney.
.04 Appropriate prescribed Information regarding foreign financial accounts is to be filed in form in TD-F90-22.1 before 30th June for preceding calendar year ended on 31st December .
4. Investment in private equity funds and hedge funds are excluded
We will be happy to provide assistance in case of doubts but it would be appropriate that a professional CPA or the IRS is contacted for clarifications .
We hope the contents are found useful.
RAJESH H DHRUVA
Tel. No. : 0091 281 245 3367 (four lines) / 245 9613
email firstname.lastname@example.org ; email@example.com