The Republic of Bulgaria becomes the latest nation to enter into a pact with the United States government to implement FATCA, the Foreign Account Tax Compliance Act. Passed by Congress in 2010, the law hopes to crack down on tax evasion using offshore accounts. Under the law, foreign banks and financial institutions must review their account records and report accounts with ties to the United States. That includes accounts that are owned or controlled by a U.S. taxpayer and also accounts in which a U.S. taxpayer has signature authority.
Bulgaria’s cabinet approved the pact on February 4th. The National Assembly must still ratify the agreement before it becomes effective. Little opposition is expected, although banks and privacy advocates complain about the costs and potential for abuse.
If the National Assembly fails to ratify the FATCA pact, Bulgarian financial institutions would become subject to an onerous 30% withholding tax.
The Sofia Globe reports that in signing the agreement, Bulgaria’s state media office said FATCA is an effective new tool “to improve administrative co-operation between the tax administrations of Bulgaria and the US and will significantly contribute to international banking and tax transparency.” Government officials also said FATCA is an effective tool to fight tax evasion.
In the last few years, FATCA has become a model for other countries also interested in fighting tax evasion. The Organisation for Economic Cooperation and Development has adopted its own tax transparency model legislation. The OECD represents most developed countries in the world.
People with unreported accounts in Bulgaria are urged to come forward immediately. U.S. law requires taxpayers with $10,000 (USD) or more in foreign accounts to report those accounts. It does not matter whether those accounts are in U.S. dollars or Bulgarian lev. Failure to report a foreign account carries civil penalties of up to $100,000 or 50% of the highest historical balance of the account and these penalties are routinely applied. Willful failure to report an account can also be a felony.
There are amnesty options available but those disappear once the IRS obtains account information from a Bulgarian bank.
Have questions on FATCA? Give us a call. Our offshore IRS reporting services are available worldwide and most services can be provided for a flat fee. Initial consultations are without charge. All inquiries are covered by the attorney – client privilege.