FATCA and FBAR Compliance Guide for US Expats

For US citizens and green-card holders living outside the United States, two overlapping reporting regimes — FATCA (Foreign Account Tax Compliance Act) and FBAR (the Report of Foreign Bank and Financial Accounts) — create compliance obligations that differ fundamentally from those faced by nationals of almost any other country. The United States is one of very few countries that taxes its citizens on worldwide income regardless of where they reside, and the FATCA/FBAR framework is designed to ensure that foreign financial assets are visible to the IRS.

Understanding these obligations is not optional. The penalties for non-compliance, whether deliberate or accidental, are severe enough to cause permanent financial damage. This guide provides a clear overview of what is required, where the complexity lies, and how to manage compliance effectively.

The Basic Distinction: FATCA vs FBAR

These two regimes are related but separate:

FBAR is older (it dates from 1970 under the Bank Secrecy Act) and broader in scope. It requires US persons to report foreign financial accounts if the aggregate maximum value of all foreign accounts exceeded $10,000 at any point during the calendar year. It is filed with FinCEN (Financial Crimes Enforcement Network), not with the IRS, using FinCEN Form 114, via the BSA E-Filing System. The deadline is 15 April, with an automatic extension to 15 October.

FATCA was enacted in 2010 and operates on two levels. First, it requires US persons to disclose specified foreign financial assets on IRS Form 8938, filed with their federal tax return. Second, it requires foreign financial institutions (FFIs) to identify and report US account holders to the IRS — either directly or through their local government under an Intergovernmental Agreement (IGA). Over 100 countries have signed IGAs, meaning that most mainstream financial institutions worldwide are reporting on US persons.

Who Is Affected?

The obligations apply to:

• US citizens, including those with dual nationality who may not have lived in the US for decades.
• Green-card holders (lawful permanent residents) regardless of where they reside.
• Certain resident aliens who meet the substantial presence test.

Many individuals are surprised to discover that citizenship-based taxation applies to them — particularly dual nationals who were born in the US but raised abroad, or those who obtained US citizenship through a parent. If in any doubt about whether US tax filing obligations apply, take professional advice immediately.

FBAR: What Must Be Reported

The FBAR covers a broader range of accounts than many assume. Reportable accounts include:

• Bank accounts (current, savings, fixed deposit)
• Brokerage accounts held at foreign financial institutions
• Mutual funds held outside the US
• Foreign pension accounts in some circumstances
• Accounts over which the person has signature authority (for business owners, this can include corporate accounts)

The $10,000 threshold is an aggregate test. If you have three foreign accounts with balances of $4,000, $4,000, and $3,000, all three must be reported even though each individually falls below the threshold.

Form 8938 (FATCA): What Must Be Reported

Form 8938 has higher thresholds and a different scope. It applies when specified foreign financial assets exceed:

• $200,000 on the last day of the tax year, or $300,000 at any point during the year — for US persons living abroad (single filers)
• $400,000 / $600,000 for married filing jointly living abroad

Specified foreign financial assets include:

• Foreign bank and financial accounts (overlap with FBAR)
• Foreign stock and securities held outside a US financial account
• Foreign financial instruments
• Interests in foreign entities (companies, partnerships, trusts)
• Foreign pension plans and deferred compensation arrangements

There is significant overlap between FBAR and Form 8938, but they are not identical — some assets appear on one and not the other. Both must be filed correctly.

Penalties for Non-Compliance

This is where the stakes become very high.

FBAR penalties (civil):

• Non-wilful failure: up to $10,000 per violation (per account, per year), though in practice the IRS has shown some discretion for genuinely unaware filers under streamlined procedures.
• Wilful failure: the greater of $100,000 or 50% of the account balance at the time of the violation, per violation. Criminal penalties also apply.

FATCA penalties (Form 8938):

• Failure to file: $10,000 per failure, rising to $50,000 if the failure continues after IRS notice.
• Understating income attributable to undisclosed assets: 40% penalty on the understatement.

The courts have taken varying positions on whether FBAR penalties can be assessed per account-per-year (potentially multiplying the penalty substantially), but the risk of very large penalty assessments is real.

Streamlined Filing Compliance Procedures

Many US persons discover their FATCA/FBAR obligations only after years of non-compliance — often upon receiving a question from a foreign bank or reading about the obligations for the first time. The IRS provides two streamlined programmes for those who were non-compliant due to non-wilful conduct:

Streamlined Foreign Offshore Procedures: For US persons who qualify as non-residents. Requires filing amended returns for the three most recent tax years and FBARs for the six most recent years, plus a 5% miscellaneous offshore penalty in some cases. If genuinely non-wilful, penalties may be waived.

Streamlined Domestic Offshore Procedures: For US persons who were resident in the US during the period of non-compliance. A 5% penalty applies to the highest aggregate balance of unreported foreign financial assets over the six-year period.

Both programmes require certification that the failure to comply was non-wilful. Making a false certification carries criminal risk. The decision to use a streamlined procedure should only be made with the guidance of a qualified US tax adviser.

Interaction with Foreign Tax Obligations

Most US expats are tax resident in their country of residence and pay local taxes there. The Foreign Tax Credit (Form 1116) and the Foreign Earned Income Exclusion (Form 2555) exist to mitigate double taxation, but their application is complex:

• The Foreign Tax Credit offsets US tax liability dollar-for-dollar with foreign tax paid on the same income, but credit usage is limited by separate category baskets (general income, passive income, etc.).
• The Foreign Earned Income Exclusion allows exclusion of up to $132,900 (indexed) in foreign earned income for 2026, but only applies to earned income, not investment income.

It is important to understand that the existence of foreign tax treaties does not override FATCA/FBAR reporting obligations — filing is still required even if no US tax is actually owed.

The Issue of Passive Foreign Investment Companies (PFICs)

US persons holding interests in non-US mutual funds, ETFs, or certain offshore investment vehicles face an additional layer of complexity under the Passive Foreign Investment Company (PFIC) rules. PFICs are taxed under punitive default rules (an interest charge on undistributed income at the highest marginal rate), though elections to mark the position to market or use the qualified electing fund method can produce better outcomes. The annual PFIC reporting requirement (Form 8621) is frequently overlooked and can result in significant penalties.

For US expats holding offshore investment bonds, international funds, or foreign pension arrangements, PFIC analysis is a critical planning consideration.

Renouncing US Citizenship: The Exit Tax

Some long-term expats, particularly those with no intention of returning to the US, consider renouncing citizenship to escape the burden of citizenship-based taxation. This is a significant and irreversible decision. Those who renounce (or long-term green-card holders who abandon their status) and who meet certain wealth or tax compliance thresholds are treated as "covered expatriates" subject to an Exit Tax — which effectively taxes unrealised gains on worldwide assets as if they had been sold on the day before expatriation.

The Exit Tax applies if, among other tests, your average annual net income tax liability for the five preceding years exceeds approximately $211,000 (indexed, for 2026), or your net worth exceeds $2 million. Professional planning before renouncing is essential.

Practical Steps for US Expats

1. Confirm your filing status: Establish whether you are subject to US tax obligations and for which years.
2. Identify all reportable accounts: Compile a list of all foreign financial accounts and assets, including pension plans and insurance products.
3. Engage a dual-qualified or US-specialist tax adviser: This is not an area for generalists. Advisers who understand both US tax law and the tax law of your country of residence are essential.
4. File annually without exception: Even if no US tax is owed, the filing obligations exist. Failure to file accrues penalties.
5. Review on any change of circumstance: Marriage, inheritance, starting a business, opening new accounts — all can change your compliance picture.
6. Consider your long-term citizenship strategy: If you have no intention of returning to the US, the cost-benefit of citizenship versus renunciation may be worth analysing with professional support.

How Global Investments Can Help

Global Investments works with internationally mobile clients, including US persons managing complex cross-border financial situations. While we recommend that all US persons retain a specialist US tax adviser for FATCA and FBAR compliance, our advisers can help ensure that your investment and financial planning is structured in a way that is compatible with US reporting requirements, minimises unnecessary complexity, and aligns with your broader wealth objectives.

We also maintain professional relationships with specialist US/international tax advisory firms and can make referrals where appropriate.

This article is for general information only and does not constitute tax or legal advice. US tax law and FATCA/FBAR regulations are complex and subject to change. Always consult a qualified US tax professional for advice specific to your situation.