The advent of globalization has paved the way for enterprises to expand their business to markets beyond geographies. While moving to different countries brings in greater business opportunities for enterprises leading to higher revenue generation, it also enables the workforce to work in multi-cultural and multi-national environment equipped with world class infrastructure and better monetary returns.
Need for FBAR Reporting In a Global Business Environment
1. Need for FBAR Reporting In a Global Business Environment
The advent of globalization has paved the way for enterprises to expand their business to markets beyond
geographies. While moving to different countries brings in greater business opportunities for enterprises
leading to higher revenue generation, it also enables the workforce to work in multi-cultural and multi-
national environment equipped with world class infrastructure and better monetary returns. Nevertheless,
this also calls the enterprise and its workforce to adhere to the tax regulations prevalent across every
country where they function and operate.
According to the tax law prevalent in the United states, every individual need to file the tax returns. Besides
these, the US government requires that individuals and entities who have a financial interest in or signature
or other authority over a foreign financial account are required to file an annual TD F 90-22.1, Report of
Foreign Bank and Financial Accounts— known as an FBAR — with the Treasury Department. The FBAR
reporting form can be used by every individual irrespective of being a US citizen or a green card holder to
provide the details of bank accounts, fixed deposits as well as mutual funds or any other financial arm with
signatory powers if their total balance across all accounts is $10,000 or greater at any time during the year.
This form will help the US government to understand the financial status of the individual or enterprises
outside the state boundaries.
The income generated inside any foreign financial accounts is also reported as per the type of income being
generated on the income tax return statements of the financial year. However, both individuals and
enterprises need to have a clear understanding of the types of foreign financial accounts that needs to be
included for FBAR reporting. Depending on the filing threshold, the accounts that needs to be reported
includes
Bank accounts ( both checking and savings)
Investment accounts
Mutual funds
Retirement and pension accounts
Securities and other brokerage accounts
Debit card and prepaid credit card accounts
Life insurance and annuities having cash value
Gold kept in locker facility provided by the bank
While filing of individual tax returns and FBAR reporting is mandatory for every individual with earning capacity, a
number of tax payers often try to evade income taxes by hiding their incomes in overseas banks and brokerage
accounts and nominee entities. Further, these tax defaulters also tend to make use of the overseas debit cards,
credit cards, foreign trusts, wire transfers, annuities and insurance plans to evade tax payments. Such actions also
gives birth to a number of cases of illegal case transactions. The FBAR reporting system was thus set up as a tool to
assist the IRS to keep track of the funds that forms a part of the unreported income maintained or generated
overseas.
For more information visit - Tax planning stratergies.