FBAR (Foreign Bank Account Report): an overview
Are you a U.S. citizen and do your financial transactions cross U.S. borders? American legislation has measures that you may have to consider, but that you may not yet know (enough) about. One such measure is the Foreign Bank Account Report (FBAR). This article provides an overview of the FBAR so you know if, why, how, and when to report.
What is an FBAR?
FBAR was enacted in 1970 as part of the Bank Secrecy Act (BSA). The primary goal of FBAR is to increase transparency and allow the U.S. government to monitor offshore accounts. This should prevent individuals from hiding income and assets abroad in order to evade taxes or engage in illegal financial activities.
Who should report?
FBAR requires U.S. citizens and residents to report their foreign financial accounts if the value of these accounts exceeds $10,000 at any point in the calendar year. So, this means that if you have multiple accounts abroad and the total value exceeds $10,000, you will have to file an FBAR regardless of whether each individual account exceeds this threshold. So please note that it concerns the total sum of all accounts and the report must also be made, even if the total balance is (much) lower than $10,000 for most of the calendar year. Do you meet these criteria? Then you are obligated to report.
How do you file an FBAR declaration?
FBAR reporting is done through FinCEN Form 114, which must be filed electronically with the U.S. Treasury Department's (FinCEN) Financial Crimes Enforcement Network, an agency of the U.S. Treasury Department. On this form you must provide information about your foreign financial accounts, including the account numbers, the names of the account holders, the name and address of the financial institution and the maximum value of the accounts during the reporting year.
When to file?
FBAR reports apply to the previous calendar year and must be submitted by April 15 after the previous calendar year. You'll get an automatic renewal until October 15 if you don't meet the annual expiration date of April 15. You do not have to request a postponement for this.
Sanctions
With its strict reporting requirements and severe penalties for non-compliance, FBAR serves as a deterrent and promotes greater transparency in international finance. Failure to comply with the FBAR obligations, can therefore leave you subject to hefty sanctions. If charged with willful negligence (i.e., an intentional violation), the fines can be as high as $100,000. Extreme cases are prosecuted and can even lead to prison sentences. Did you not file an FBAR declaration because you did not know that you were obliged to do so? Fines for non-intentional violations on FBAR can be as high as $10,000 per violation.
Increased transparency
In recent years, enforcement of FBAR regulations has become stricter. The U.S. government actively cooperates with foreign financial institutions and exchanges information to identify taxpayers with undeclared foreign accounts. In addition, the requirements for sharing information have been expanded with the implementation of the Foreign Account Tax Compliance Act (FATCA). Under FATCA, foreign financial institutions are required to report information about U.S. taxpayers' accounts to the Internal Revenue Service (IRS). This strengthens the IRS's ability to track offshore accounts and ensures a higher level of compliance.
Want to know more?
Do you want to read more about FBAR? You can find more information about the Financial Crimes Enforcement Network (FinCEN) on this website. Here, the IRS explains more about FBAR. If you want to know more about the Bank Secrecy Act (BSA), click here for an overview of the law. Moneywood has published several articles for entrepreneurs doing business in the Netherlands, for example about the Dutch tax system and the advantages and disadvantages of establishing a company in the Netherlands. Do you have questions about your specific situation or need help with your FBAR declaration? Feel free to contact us. We are happy to help you.