Rules of the Report of Foreign Bank and Financial Accounts (FBAR)
The main point of this article is to emphasize the importance of filing FBAR! US tax residents need to file income tax for their world-wide income each year. In addition, form FinCEN 114 of FBAR must be submitted in accordance with the US Bank Secrecy Act if the value of overseas financial accounts totals over USD10,000. As long as the overseas financial accounts meet the following two conditions simultaneously, they must be honestly declared to the US Treasury Department:
- An overseas account having financial benefits, signing rights, and other rights (available).
- The total value of all overseas financial accounts exceeds USD10,000 at any time of the year.
According to the rules of FBAR, the assets of overseas financial accounts that need to be declared to the US government include the following (but not limited):
- Bank accounts, such as current accounts, time deposits, and check deposits.
- Securities accounts, such as brokerage accounts and derivatives.
- Commodity futures and options accounts.
- Insurance policies with cash value, such as whole life insurance policy.
- Mutual funds or pooled funds.
The financial assets of FBAR that need to be declared are similar to those of FATCA (Foreign Account Tax Compliance Act). But, FBAR does not require the declaration of shares of unlisted companies. The threshold of FBAR declaration is also much stricter than that of FATCA. No matter whether you are a US national living in the US or overseas, as long as the overseas total financial assets exceed USD10,000, they must be declared according to the rules of FBAR.
We recommend that if you are applying for the US citizenship, after you have obtained the US citizenship, you honestly declare your financial assets according to the rules of FBAR and FATCA. For the applicants who have not obtained the US citizenship, we recommend that you think twice before you decide whether you truly want to apply for the US citizenship. There is no problem of paying tax when declaring for FBAR and FATCA. But, if in the future you have doubts about paying legacy taxes, we recommend that you must consult with professionals, so that you will understand your own situation better to decide whether to apply for the US citizenship.
