FATCA made it extremely difficult for US citizens to open offshore bank accounts and this is applied to all, who hold a US passport (even if they lived abroad) are liable for tax in the US as well as US non-citizen who are tax residents in the US.
The banks that denied US persons usually denied both US citizens and persons living in the US to open personal or business bank accounts. Banks prefer the 'better safe than sorry' approach that excludes American clients, since the compliance with US rules and FATCA reporting requires additional development and cost with the legal and compliance procedures of each bank.
During the last years, many US persons faced a situation where suddenly received a notice from their bank that their bank account will be closed in recent months, explaining in a letter that bank's services are no longer available to US citizens.
Increasing numbers of US persons are being denied banking services, especially in Switzerland, which used to be the offshore bank account hub.
Cyprus as an option to open an offshore bank account
Nowadays, while many Americans had experienced an account closed already or the threat of closing was held over their heads, Cyprus, is accepting US person to open a bank account with a number of options available. The procedure is fairly simple and full banking functionality is provided along with the attractive tax regime.
The small island faced two years ago with the Eurogroup decision for the recapitalisation of Cypriot banks by a bail-in of all bank deposits is successfully recovering. The last restrictions on international transfers was lifted on April 6 and domestic capital controls ended. The lifting of the restrictions confirms the full restoration of confidence in the banking system, the significantly improved business climate and essentially marks the return of the economy to normal conditions.
Fitch, the ratings agency, believes that Cyprus will not need the entire 10 Billion Euros granted by its international lenders two years ago. Fitch issued positive ratings for Cyprus, affirming its long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B-' with a positive outlook. The improved ratings were due to recent fiscal over-performance, which has improved the public debt dynamics.
Cyprus and compliance with Fatca
Cyprus financial institutions are committed to become fully FATCA compliant.
The Republic of Cyprus sign an Inter- Governmental Agreement with the US, in regards to the Foreign Account Tax Compliance Act (FATCA).
Under the Inter- Governmental Agreement (the 'Agreement') all participating Cyprus financial institutions will be required to report all FATCA related information to the Tax Department in Cyprus.
FATCA obligations require Cyprus financial institutions to identify financial accounts held by U.S. residents or U.S. citizens, or by entities that are organized in the US or controlled by one or more U.S. persons and to report that information to the IRS of the United States. Under the Agreement, this reporting will take place through the Tax Department in Cyprus (formerly "Inland Revenue Department"). The U.S. will provide Cyprus with enhanced and increased information on certain accounts of Cyprus residents held at U.S. financial institutions.
Model 1 IGA between the US and Cyprus is treated to be "in-effect" by the US Treasury and the IRS as of 22 April 2014. The US and Cyprus governments have reached an agreement in substance in relation to the terms of the agreement and Cyprus has expressly consented to be included in the relevant "in-effect" list.
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