Question:
My financial advisor told me that there is a withholding on money transferred to Mexico, is that true?
Answer:
The last couple of programs
people have been asking about a new law regarding 30% holdback by the U.S. government and there has been some
confusion on what this means in respect to them moving to Mexico and
bringing money. Recently a client sent an Article from King and Spalding Tax Group which explains the effects of this
new law, however is a little tough reading. We sent this to Marian Wellman, our
Tax Expert (who does seminar on Focus Program) for her interpretation of the
article (in layman's terms) and it is as follows:
"People are reading this
wrong. This deals with foreign citizens (i.e., Mexicans) who have
investment accounts in the US.
There are a variety of treaties in effect between the US and citizens
of foreign countries, different by country. Currently, for example,
portfolio interest earned in the US for the account of a Mexican
citizen is exempt from US taxes. Most dividends are subject to only 10%
taxes. Some of these provisions may change, and the 30% figure applies to
a default amount of taxes due unless lower by treaty. (For example,
Mexican widows of US citizens can receive their Social Security payments from
their spouse's account, but it will have 30% taxes withheld). US
financial institutions may have to withhold an automatic 30% on payments to
foreign citizens with accounts in the US. There is no 30%
withholding for a US citizen transferring money to Mexico - that is after-tax
money and not subject to a withholding merely by bringing money down here, or
elsewhere, to buy a house.
The other provision, and this is
more favorable than it has been in the past, is the Foreign Bank Account
Reporting, or FBAR. Previously, it had been required for aggregate
amounts of $10,000 in a foreign country; now the amount is $50,000. As I
stated previously, the official rule has always been that Americans should
report income world-wide, and this can be offset by taxes paid to another
government, such as taxes on accounts in Mexico. The FBAR has always
been officially required, but if the institution does not ask for a Social
Security number, there is no tracing back to the US. The net effect would
balance out anyway."