Understanding that financial institutions located outside of the US Not subject to the same controls as domestic financial institutions, Foreign Bank Account Reporting (FBAR) is used by the United States. as a tool to identify individuals in the broad sense, physical and legal, who could be using financial accounts outside the US to circumvent US law
In this framework, an annual report to the American Treasury Department of American people in the broad sense, physical and legal, who have financial interests or authorized firms on at least one, was approved as part of the North American Bank Secrecy Act (BSA) regulations. a bank account maintained outside the US, which will be audited by the Internal Revenue Services (IRS) of that country.
It is included in the definition of persons obliged to report to American entities that have 50% or more participation in foreign companies that have an account abroad.
Who should make the report?
The people of the USA must report by FBAR if:
- If the person from the US you have a financial interest or authorized firm in at least one bank account located outside the US;
- As long as said account exceeds USD 10,000 at any time of the calendar year.
The American people included in this reporting obligation are the American citizens, American residents, entities included, but not limited to, corporations, partnerships and Limitied Liability Companies, created or organized in the USA. under the law of that country, this definition in turn includes Trusts formed under US law.
It is important to clarify regarding this point that the tax treatment of entities does not determine whether it must comply with the FBAR, that is, no matter how much an entity is considered tax foreign in the United States. it must comply with the requirements imposed by the FBAR as long as it is legally US. The FBAR does not apply taxes, but is a reporting and oversight system only
Taking into account the aforementioned, the following definition of persons from the United States will be taken into account on the occasion of the FBAR:
to. A citizen of the United States of America;
b. A resident of the United States of America;
c. An entity formed under the laws of the United States of America, any state, the District of Columbia, any territory or possession of the United States of American or an indigenous tribe.
Some details regarding the subjects obliged to report
- What is meant by financial interests on a bank account?
A person from the USA has a financial interest in bank accounts in the following situations:
- The person from the USA is the owner or holder of the bank account regardless of whether the account is held for the benefit of the US person. or for the benefit of another person, including another non-US person.
- The owner or owner is a foreign person acting as an agent, nominee, attorney, or acting on behalf of a US person. regarding the bank account.
- Example: Patrick is an American citizen. His brother Steven maintains bank accounts in Mexico on behalf of Patrick. The accounts are in Steven’s name, but Steven only operates on the account according to his brother’s instructions. Therefore, in this case Patrick has a financial interest in the bank account in Mexico and must report according to the FBAR. Also, if Steven is a U.S. citizen or resident You must also report to the FBAR regarding these accounts.
- The owner or owner of the bank account is a corporation in which a person from the US It owns directly or indirectly: (i) more than 50% of the total shares of the company; or (ii) more than 50% of the voting rights in the company.
- Example: A Florida corporation owns 100% of a Spanish company that has foreign bank accounts must complete the FBAR since the corporation is a US person. and directly owns more than 50% of the shares of the Spanish company that is the owner or holder of bank accounts held abroad.
- The owner or owner of the bank account is a US partnership. in which a person from the USA owns directly or indirectly: (i) more than 50% of the profits of the partnership, or (ii) owns more than 50% of the capital of the partnership.
- The owner or owner of the bank account is any other entity in which a person from the US Holds directly or indirectly more than 50% of the voting power, of the total of the shares or assets or rights over the earnings.
- What is meant by authorized signature?
Authorized signature is the signature of an individual that allows him to control, through direct communication with the bank or financial institution, the disposition of assets in custody of the foreign bank account.
The deadline for making this report is April 15 of each year, with a maximum extension of six months, expiring on October 15 of each year, and no application should be submitted to obtain said extension.
Failure to comply with the FBAR communication may have civil and criminal consequences for the obligated parties. It is necessary to clarify that at the time of making the report and in case of omitting to make it on date, the reporting system itself allows explaining the cause in the late filing or in case the Internal Revenue Service (IRS) understands that the reason is reasonable no penalty can be imposed on the obligated subject.
- Distinction according to dates:
- In the case of penalties assessed after August 1, 2016, for infractions committed after November 02, 2015, the IRS may impose a maximum penalty of USD 12,459 per violation, when there is no intentionality in the cause that produced the offense, which is adjusted for inflation from the date the offense was incurred until the date on which the penalty is applied. For those violations committed intentionally, the maximum applicable penalty for each violation will be USD 124,588, which will also be adjusted for inflation as mentioned above, or 50% of the balance in the bank account at the time of the violation.
- In the case of the penalties that are evaluated prior to August 1, 2016, for infractions committed before November 02, 2016, the penalty will not exceed USD 10,000 per infraction when it is committed without intention. In cases where the infraction has been committed with intentionality, the penalty will be the highest between USD 100,000 and 50% of the value of the account at the time of the infraction.
Exceptions imposed by regulations
The following exceptions mentioned in the regulations will not be subject to complying with the report implemented by the FBAR:
Regarding people excepted from reporting the regulations, he mentions the following:
- Consolidated FBAR: A person from the USA that it is an entity and that it is named in a consolidated FBAR report submitted by an owner with a participation greater than 50% is not required to complete a separate FBAR;
- Individual Retirment Account (IRA) owners and beneficiaries are not required to comply with the report;
- Participants and beneficiaries of tax-qualified retirement plans , described by the IRS;
- Authorized signature: Those individuals who have an authorized signature on a bank account, but do not have financial interests in a foreign bank account, as defined above, will not be required to comply with the FBAR report in some situations mentioned by the normative;
- Trusts Beneficiaries: Trusts beneficiaries with a direct or indirect financial interest greater than 50% of the trust’s assets or income from the trust do not require reporting bank accounts held abroad by the trust as long as the trust or trustee is a person from the USA and comply with the FBAR report.
Regarding foreign bank accounts, the following are exempt from complying with the FBAR:
- Certain jointly owned accounts of the spouses , in some cases where an individual’s spouse completes one FBAR, the other does not need to complete one separately;
- Correspondent account , maintained by banks and used only for bank to bank settlement purposes;
- Government accounts;
- Account of an international financial institution;
- US Military Banking Service