American expatriates in Chile should be prepared for possible FATCA changes. To learn more about FATCA, please read What is FATCA. The Chilean Association of Banks and Financial Institutions (the “ABIF”) requested the adoption of the IGA agreement between the USA and Chile. The main goal is to facilitate the implementation of Foreign Account Tax Compliance Act (FATCA) and prevent any disruption to the Chile’s financial system in 2014.
What is unique about this FATCA development?
This Foreign Account Tax Compliance Act (FATCA) request is unique in its nature. American expatriates in Chile have always relied upon the protection under the Chilean domestic law. Article 154 of the General Law of Banks prohibits Chilean banks from disclosing information about deposits without a customer authorization. There are criminal penalties for a violation of this law. Customer banking transactions not linked to deposit transactions might be disclosed, however, this disclosure cannot result in any monetary damage to a customer. A court order is required to override this rule.
What other challenges exist in Chile that affect the FATCA implementation?
- The USA has been the largest supplier of foreign direct investment in Chile since 1974. Moreover, the volume of financial transactions between the U.S and Chile is enormous as the USA is the Chile’s second largest trading partner. A failure to implement an intergovernmental agreement between two countries might disrupt financial markets.
- Currently the U.S. and Chile do not have the ratified income tax convention. So, there is no system in place to exchange information until the FATCA is implemented.
What type of IGA agreement is requested?
The Chilean Association of Banks requested an IGA similar to the Foreign Account Tax Compliance Act FATCA agreement with the UK. Under this type of IGA, the information that cannot be disclosed by a financial institution to the Internal Revenue Service, would be exchanged under a tax information exchange agreement.
How does this FATCA request affect American expatriates in Chile?
American expats must remember that the Chilean Association of Banks and Financial Institutions is comprised of all major banks in Chile and non-Chilean bank with representative offices in Chile. All banks have clearly indicated their support for introducing the FATCA and implementing financial transparency and preventing tax evasion.
Also, the banks expect that the FATCA implementation will help the financial institutions in Chile avoid 30% withholding tax.
American expatriates in Chile with undisclosed accounts should be prepared for the FATCA and disclose their financial accounts if they failed to do so in the past.
American expatriates in Chile with questions about FATCA, FBARs, PFIC, foreign trusts or other overseas tax issues must consult an expat tax preparer that provides international tax services. International tax experts at Artio Partners are here to help you.