When a foreign national does pur-
chase a U.S. investment (assuming the
fund company allows it, Karaosmanoglu
said), they’re subject to withholding on
the dividends. “We work to make sure
if they’re allowed to buy offshore funds,
there is no withholding. They’re not
subject to income taxes here. We try to
minimize any negative tax.”
In addition to offshore funds,
Karaosmanoglu said foreign nationals
can hold interest deposits and certain
bonds. “We need to know what they’re
doing and try to educate them because
many of these people have no idea.
In fact, many investment firms really
don’t have an idea either. We work with
CPAs in the area who are experts with
both foreign nationals and U.S. citizens
It varies country by county, but Tuncer
added that the “majority” do have tax
treaties in place to protect investors
from paying taxes in two places.
Karaosmanoglu added, though, that
tax planning for foreign nationals can
be tricky, and recommended advisors
who are trying to expand their international clients partner with CPAs or estate
attorneys familiar with the rules. “Your
regular, everyday CPA does not know the
rules. They should find an estate attorney
who understands international clients as
well. These are crucial,” he said.
the Paperwork and
Sometimes the planning challenges are
more administrative. A challenge for
Americans living abroad—which the
State Department Bureau of Consular
Affairs estimates is in the area of 7
million—is that “many of the fund com-
panies here do not allow their shares
to be owned with a non-U.S. address,”
Karaosmanoglu said. “For those clients,
we primarily work with ETFs.”
He added, “Basically, you need to
know what the citizenship of the client
is and where they live.”
Advisors who are used to signing
clients after one or two meetings may
be stunned to find non-U.S. clients take
IRS International Data Exchange Service Open for
The Internal Revenue Service announced in January that its International Data
Exchange Service (IDES) is open for enrollment, and that financial institutions
and host country tax authorities will be able to use IDES to securely send their
information reports on financial accounts held by Americans to the IRS under
the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of
an intergovernmental agreement (IGA), as applicable.
“The opening of IDES is a milestone in the implementation of FATCA,” said
IRS Commissioner John Koskinen in a statement. “With it comes the start of a
secure system of automated, standardized information exchanges among gov-
ernment tax authorities. This will enhance our ability to detect hidden accounts
and help ensure fairness in the tax system.”
More than 145,000 financial institutions have registered through the IRS
FATCA Registration System, with the U.S. having more than 110 IGAs, either
signed or agreed in substance.
Financial institutions and host country tax authorities will use IDES to provide
the IRS information on financial accounts held by U.S. persons.
“Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide
similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents,” Koskinen said.
The IRS explains that in using IDES, a web application, the sender encrypts
the data and IDES encrypts the transmission pathway to protect data transfers.
“Encryption at both the file and transmission level safeguards sensitive tax
information,” IRS said.
The IRS encourages host country tax authorities in Model 2 IGA jurisdictions
(Austria, Bermuda, Chile, Hong King, Japan, Moldova and Switzerland) and
financial institutions to begin the enrollment process well in advance of their
However, a financial institution or tax authority will need to first obtain a digi-
tal certificate to begin transmitting information in IDES, as “digital certificates
bind digital information to physical identities and provide data integrity.”
A list of approved Certificate Authorities are available on IRS.gov.
For host country tax authorities in Model 1 IGA jurisdictions, the IRS said that
it will directly notify them to let them know when it is time to enroll.
Financial institutions will initiate enrollment online on their own; in order
to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and
have a global intermediary identification number (GIIN) that appears on the
IRS FATCA FFI list. The online address for IDES enrollment can be found at
www.IDES-Support.com. —Melanie Waddell
You “cannot be a domestic-oriented
financial advisor. You need to know
what is happening all over the world.”