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ResourcesCorporate and Tax AdvisoryUS Tax LawDiscussion on How Tax Reform May Impact Expats Abroad Part 1

Discussion on How Tax Reform May Impact Expats Abroad Part 1

Transcript of the above video:

In this video today we are going to be discussing some of the things that I have been reviewing with respect to the recent tax reforms that have been enacted by the Trump Administration and specifically signed into law by Donald Trump after a, well a rather drawn out legislative process in the two Houses of the US Congress and later a Conference Committee associated therewith.

A couple of things. This is just going to be a general overview; some of my thoughts with respect to the overall ramifications of this, especially from the standpoint of those Americans and lawful permanent residents living and working outside of the United States. A couple of things I noticed and let me be clear, within the provisions of the law itself, there’s only about 70 pages which pertain specifically to international tax matters or expat, things you could say “lie in the realm of expat tax issues”, which does lead me to another point.  It’s rather interesting. The legislative process is somewhat fascinating in the sense that what lay people think they understand about it, is often far from the reality and what I mean to say, and I don’t mean to sound condescending, but there is sort of a conventional view that “well Congress or the Lower House, you know, they pass a Bill, then the Senate pass the Bill and then it goes to the President”. That is not how it works because oftentimes both Houses will pass a slightly different piece of legislation and then that legislation will go into what’s called the Conference Committee for the two Houses to come to an agreement, a sort of a binding resolution on both Houses which basically is them saying, “Okay, we agree on this version of the Bill. This is what we are going to send to the President.”  What’s interesting with respect to Conference Committees, especially with respect to tax issues, is how radically they can change the overall essence of a given Bill. This is even true with respect to seemingly unrelated legislation, you’ll see legislation that will be titled and primarily embodies a certain sort of policy set of thinking or philosophical set of thinking then that legislation will be sort of co-opted or sort of steered in a different direction with respect to one set of specific set of legal premises that are placed in the Bill. An example of this in recent times is the so called “Safe Port” Act which was exactly what it sounds like. It was an Act that dealt with, an acting legislation to deal with ports in the United States. Crammed into that, in another Conference Committee, was the legislation which ultimately resulted in fundamentally the destruction of the so called “on line” poker sites in the United States. There was a time when it was possible for Americans to play poker on line, they were usually dealing with off-shore entities and they could get their money back from their poker winnings through various, you know, they could just get it back from the site itself, it’s my understanding it was wired back on into their banks accounts for the most part. The result of the so called “Safe Port” Act, and I don’t mean to digress too much here, but the result of the “Safe Port” Act was that this became impossible due to the many provisions placed into that Act as a result of the Conference Committee. A similar, I won’t say similar because overall, this entire Bill would seem, and it is a long one, would seem to only pertain to tax matters but that being said, we have yet to fully see all this play out so it is kind of hard to say exactly what the practical impact of this legislation is going to be, but I bring up the Safe Port Act just to know how important the Conference Committee process is in the enactment of legislation such as this. This piece of legislation went from 479 pages long, in its post House and Senate passage form, to approximately 1,100 pages following the Conference Committee which is ultimately what got passed to President Trump and what was subsequently signed into Law. That’s a massive difference. That is over double the pages of legislation and this all happened in the Conference Committee so the first thing to may take away from this video is that Conference Committees are rather an interesting aspect of the American Legislative process and they can have rather radical impact on the finalized Law. So as I said, there’s about 70 pages contained in this legislation which deals directly with what I would call Expat and Expat Tax Issues. A couple of things just in this video and I will be doing another video. This is a long piece of legislation. I tried to slog through it as best I can, I am reading as much about it as I can in order to be boned up for the next tax season but, a couple of things. For just your regular average worker who is working abroad, an Expat working overseas, things like FATCA, which we have mentioned in another video, the Foreign Account Transparency Compliance Act, and FINCEN stuff, specifically like foreign bank account reporting, the so called FBARs this is still going to be required, so nothing was gotten rid of with respect to this. As I recall during sort of the political whirlwind that led up to this, there was some talk about maybe getting rid of these things; as far as I read the law, I don’t see it yet. Interestingly enough, interest paid on foreign mortgages or property taxes paid outside of the United States, although it appears for this coming year or for this coming tax filing season, such payments will be deductible, mortgage payments and foreign property tax payments for property owned by an American abroad, those will be deductible. It looks like moving past next year, that’s not going to be possible moving forward so again, these are for individuals. There are still 7 tax brackets although the sort of spectrum with respect to the incomes encompassed by those brackets has shifted somewhat so there’s going to be a lot going on with respect to how withholding is dealt with, with respect to those brackets, again the sort of enforcement aspect of these issues is going to come into play sometime in the fairly near future.  Finally, and we are going to close up this video specifically as I wanted it to deal mostly with just this issue from an individual standpoint but as a prelude to another video we are going to be doing very, very soon as soon as I can get through the research, those Americans who own companies abroad or shares in companies at least of a certain nature, a substantial nature if you want to call it that, or just of a statutorily prescribed nature, there’s going to be implications for those folks moving forward and for that reason, I think it’s pretty important that the, at least the next two years, at least the people watching this video go, it’s going to be a  good idea to get some sound both legal and accounting advice with respect to preparing oneself and one’s taxable estate if you will moving forward especially for those living abroad, especially for those with property abroad or with specifically, corporations or corporate interests abroad because this piece of legislation as far as I am reading it, it’s been some tough going trying to get through the provisions thus far, it looks to me like this is going to change some things for expats and I am not going to go out on a limb and say it’s going to be for the worse, I am simply saying it’s going to change things and anything different  is going to result in a need to come up with different strategies and tactics for not only maintaining transparency and compliance and getting the filing done but also to structure ones business and property arrangements, asset arrangements, in such a way that they are, well, that they are tax efficient for lack of a better term so I am going to be making, I think, probably at least a couple  more videos specifically discussing tax in the coming days and weeks and in those videos I am going to provide a little bit more insight into the recent changes. I do want to end this by saying; I don’t mean to come off as sort of obtuse or opaque with respect to these videos. We have yet to see guidance, we have yet to see various administrative rule makings occur with respect to this legislation. Some of this legislation is at best vague or at worse so complex as to be almost unreadable in a sense and for that reason, stay tuned. This stuff isn’t going to impact anyone in the next few weeks but it can have significant impact down the road and for that reason, maybe keep in track of this channel for purposes of some further updates as to how this tax regime is going to impact people in the future isn’t a bad idea.