Long associated with bank secrecy, the Swiss financial industry has made significant changes since the Department of Justice began targeting Swiss banks for allegedly helping US taxpayers hide financial assets. Despite the connotation of owning a Swiss bank account, there are many legitimate reasons why US taxpayers may need to open accounts in Switzerland. For example, Swiss employers require a Swiss bank account to deposit their employee’s payroll.

However, US persons living in Switzerland may find that only a handful of Swiss banks accept US clients. The financial institutions that do allow US taxpayers to open an account may find that their institution requires them to fill in a form W-9 providing their US taxpayer identification number (or W8-BEN to attest that they are not a US person.) Furthermore, many banks require US persons to provide copies of their annual US tax filings.

What US taxpayers need to know:

• Swiss banks can close, or refuse to open, an account if a US taxpayer does not provide a W-9.
• Swiss banks may annually require copies of your FBAR and Form 1040 Schedule B. (Schedule B has a section for answering questions related to ownership of foreign bank accounts)
• Filing a W8-BEN to claim you are not a US person, if you are one, can bring penalties for filing an erroneous, false, or fraudulent form.

The FBAR and Form 8938, Statement of Specified Foreign Financial Assets

The FBAR has been around since the 1970s and has long required US persons owning foreign financial accounts to report highest balance information along with details of the accounts, institution name, address, account number, joint owners, etc. The FBAR is filed separately from the US income tax return with (warm and fuzzy sounding) FinCEN. The FBAR’s filing threshold is $10,000. To determine if the threshold is met, the taxpayer finds the highest balance of each non-US account, converts it to US dollars using the year-end Treasury rate, and then adds all USD highest balances together.

In tax year 2011, Form 8938 was incorporated into the US income tax return as part of the Foreign Account Tax Compliance Act (FATCA.) Unlike the FBAR, FATCA’s dual pronged approach requires reporting from the financial institution and self-reporting from the individual account or asset holder.

Many counties have signed intergovernmental agreements (IGA) with the US; there are two types of agreements. In Type 1 agreements, the financial institutions report to their government and the government passes the details to the US. In Type 2 agreements, the financial institutions reports their clients information directly if they are US taxpayers. Unlike much of Europe, Switzerland has a Type 2 agreement.

What FBAR and Form 8938 filers need to know:

• The FBAR and Form 8938 have different reporting thresholds and have differences in what non-US financial accounts and assets get reported.
• Penalties for missing these filing requirements can begin at $10,000.
• The FBAR is filed with FinCEN and Form 8938 accompanies the US income tax return.
• Certain financial institutions may be exempt from FATCA reporting but the individual is not. For example, a Swiss Pillar II provider may not be required to report the information, but the US taxpayer may need to report the account.

Finding all the nuances of foreign account reporting confusing? Reach out to the International Tax Services group at KLR. We’re here to help.