Whatever your nationality, you should be aware of your tax responsibility to your mother country. US citizens living abroad are not exempted from their tax obligations. You may be subject to income tax on any income generated inside Cuba. The present rule states that you may claim a tax exemption up to $80,000 on "foreign-earned income" if you are a resident of another country and live outside of the country for 330 days in a 365-day period. If you reside outside of the U.S. you may wait to file your taxes until June 15th. If you have questions contact IRS International in Washington, DC at 202-874-1460 or their Mexico City office at 905-211-0042. See their Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. You may also want to pick up a copy of the Expats Guide to U.S. Taxes. It is available through Amazon.com. You can obtain forms and information by using the Internet at: www.ustreas.gov.
The obligation is based on the Fair and Accurate Credit Transactions Act or (FACTA), a United States federal law, passed by the United States Congress that asks agencies to document all those customers and transfer this information to U.S. tax collector.
The IRS will in 2014 begin to order banks in the United States to withhold assets for foreign financial institutions that fail to sign the agreement. Financial institutions, like Costa Rican banks that violate the provision are exposed to the IRS withholding 30 percent of all interest, dividends or profits sent from the United States. Facta applies to all entities around the world as the U.S. wants to better regulate their capital and above all raise more the taxpayer escapees.
Slipping through the cracks in Costa Rica with a corporate bank account is not likely to succeed. Local banking regulations have for years required corporate account holders to identify beneficial owners and the IRS rules would ensnare any company with 10 percent ownership or more held by a United States person. Since the requirements are being applied worldwide, expats who leave Costa Rica or shift their assets elsewhere could expect to encounter the same requirements.
Dual citizenship in Costa Rica may be of little value in escaping FATCA. The law requires the banks to turn over information for any “United States person,” The legal definition includes those with dual nationality, as well as citizens of Costa Rica who hold legal residency in the United States.
Too meet the requirements, all financial institutions must sign an agreement with the IRS, and to inform customers about the extent to which they, in turn, authorize a disclaimer. If the customer does not want to sign the release, the entity must close the account, because otherwise, violates the Fatca.
Local banks are now preparing to implement the requirements.
Fatca integrates highly sensitive issues such as the closure of accounts and bank secrecy. Costa Rican banks are work to conform to the requirements for documentation of existing accounts.
Talk to a good U.S. tax attorney if you have questions about this new IRS regulation.
Foreign Bank Account Reporting
Form TDF 90 221
It is a simple form used to collect basic information on financial accounts overseas where American citizens or residents have control over them – whether it is because they have signature authority on the account or because they can exercise control over them (i.e. owned by a wife or an organization where they have an important stake). The form is sent to the Department of the Treasury directly, and not with your US tax returns (Although commonly mis-interpreted as a form that goes along with and makes part of your yearly tax returns).
Accounts that need to be reported are as described above, if their balance was U$10,000 or more at any point during the year. This means the account could have been at a $1 balance for 364 days, and on just one of the days (Say March 1st for sake of an example) you received a wire transfer for $10,000 on behalf of someone and immediately there after sent it out – and this account needs to be reported.
The form must be filed by June 30th of each year – no extensions apply (Even if you filed an extension for your personal returns you must file this form on time; one day late and you are subject to an automatic penalty of $10,000).
The penalties for not filing an ‘FBAR’ are harsh. They range from an automatic penalty of $10,000, which you can expect to be generated by a computer when your late TDF 90 221 is received, to 50% of the balance in the account (Calculated yearly) and criminal charges (Potential Jail time) in the event the IRS Criminal Investigator assigned to your case can prove that you willfully withheld this information from the government.
At the end of 1996 the Cuban government established the National Office of Tax Administration to tax the self-employed. Recent tax laws were passed to distribute the country's national income more equitably. New taxes were introduced gradually. Foreigners who operate joint ventures can take advantage of several tax incentives and tax deferment programs. However, most foreigners who spend more than 180 days in Cuba yearly must pay Cuban income tax.
It must be noted that private Cuban entrepreneurs are taxed heavily in order to protect state enterprises.
