The HIRE Act And Offshore Banking

“Kathleen, I think it is important for you to notify all of your readers that the banks in Panama have signed a treaty with Obama that they will now withhold 30% of any requested withdrawal and send it to the White House! Most of the banks there now refuse to open accounts for U.S. citizens. A real blow to their country’s progress and a devastating blow to all of us U.S. citizens looking for options.”

–Arthur H., United States

You raise several different issues.

To clarify, the 30% withholding has nothing to do with the exchange-of-information agreement Panama signed with the United States in 2010. This agreement has to do with banking secrecy (which no longer exists in Panama and which, I predict, will no longer exist anywhere soon) and allows U.S. agencies to make inquiry of Panama banks regarding their U.S. account-holders. Nothing to do with withholding taxes.

The 30% withholding you reference is a function of the HIRE Act. It has not yet been implemented, but, when it is, it will mean that wire transfers to banks outside the U.S. will be subject to 30% withholding if the recipient bank isn’t in compliance with U.S. rules. Those rules haven’t been finalized yet, but the idea is to force foreign banks to give information to the IRS to keep people from moving funds offshore if they haven’t paid taxes on the money. For the individual wiring the money, it means you’ll be forced to use a bank overseas that complies with the U.S. rules, as you’ll unlikely want to have the 30% withheld up front and have to try to get it back from the IRS at the end of the year. Which gets to the final point…

Right, some banks in Panama, like some banks worldwide, have decided they don’t want to deal with U.S. clients any longer. Some banks are no longer opening new accounts for Americans, and others have gone so far as to quite unceremoniously close the accounts of Americans, even some who’ve been doing business with those banks for many years. As an American, you’re going to want to work with banks that comply with the new U.S. rules, and the banks that comply should be happy to deal with U.S. clients.

Again, though, this is not peculiar to Panama. It’s a sign of the time and a growing global concern for the American looking for options offshore.