Tuesday, September 4, 2012

Hire Act (March 2010) may have dramatic consequences for US citizens investing abroad

The Hiring Incentives to Restore Employment (HIRE) Act was signed into law in the US in March 2010 and whilst most of the act relates to specific incentives to create and employment within the USA, there are specific parts (Foreign Account Tax Compliance or FACTA) that may have long reaching consequences for US citizens wishing to invest or own real estate abroad.

Enacted by Congress in 2010, FATCA targets non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign institutions to tell the IRS about accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold substantial ownership. To avoid withholding, a participating institution must enter into an agreement with the IRS to: 

  • Identify U.S. accounts; 
  • Report certain information to the IRS regarding U.S. accounts; and 
  • Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information. 
Foreign institutions that don’t sign an agreement with the IRS face withholding on payments, including U.S. source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments.

The regulations are sweeping and the penalties for non compliance by US banks are very punitive.

What is the likely end result of these regulations?

1. US banks will levy the tax on all foreign transfers because from their point of view it will be easier "to be safe than sorry"

2. Foreign banks will not want to open bank accounts for US citizens because of the new stringent  reporting requirements.

These regulations will be enacted into law on the 1st of July 2014 (IRS has now announced a delay on implementation until the 31st December 2013 and a subsequent delay to 1st of July 2014).

So if you plan to invest abroad, the likely end result after 1st of July 2014 is that the money you wish to use to purchase your dream Costa Rican home will be subject to an additional US tax or will be monitored closely.

Is there a solution? Well the answer is to act before the  1st of July 2014.(IRS has now announced a delay on implementation until the 1st of July 2014).

The law has not yet been enacted, if it does enact on the 1st (and no commentator is suggesting it will not) and you have taken action and placed your funds abroad, you're budget is intact. If the law does not enact and you decide not to invest abroad in real estate or other investment opportunities, you can bring your funds back into the US.

For those clients who have not yet decided on a home in Costa Rica and want to keep their investment options open, we have an excellent CD Eco Mortgage Investment offering 10.95% interest and a 1 year term. See more about it here.

This CD Eco Mortgage Investment can also be combined with a residency application and you can read more about that here

You can download the HIRE act here. Page 27 is the section referring to Foreign Account Tax Compliance. Alternately a google search on the Hire act and currency control will give lots of views on this new law.

Avoid this significant reduction in your investment budget and take action now, avail of our Eco Mortgage or contact us on our website or by e mail at info@costaricainvest.ie or by phone on

USA +1-866-990-1123 (toll free) or Europe +353-1-272-4184 and we can discuss solutions specific to your needs.

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