Ecuador banks are scrambling to establish rules for U.S. citizen account holders to comply with new IRS reporting requirements. The new rules will affect existing accounts as well as new accounts belonging to U.S. citizens.
According to spokespersons at Banco Pinchincha and Banco Internacional, the rules are the result of the U.S. Foreign Account Tax Compliance Act, or FATCA, and will only apply to U.S. citizens. “We want our U.S. clients to understand these requirements are not our choice,” said an employee at Banco Internacional, who asked not to be named. “The U.S. government is requiring us to do this and, because we use the U.S. dollar, Ecuador’s Central Banks is asking us to comply. The new rules do not apply to Canadians or citizens of other countries.”
He added: “What’s happening with U.S. account holders in Ecuador is happening all over the world. This is just as hard for the banks as it is for our clients.”
The U.S. IRS has given the world’s banks with U.S. clients until the end of the year to establish reporting procedures.
Passed by the U.S. Congress in 2010, FATCA requires U.S. citizens to report all bank accounts held outside of the U.S. The law also requires cooperating foreign banks to provide information about U.S. clients to the U.S. IRS. The intent of the law, according to its sponsors, is to make it more difficult for U.S. taxpayers to conceal assets held in foreign accounts. FATCA was part of a larger bill known commonly as the HIRE Act.
All the major banks in Ecuador have agreed to provide informaton to the IRS.
An account representative at Banco Pichincha said that each bank will establish its own rules for collecting the information to provide the IRS. Some banks will require income tax returns from U.S. clients, he said, while others may ask for an empadromamiento document, verifying the account holder’s immigration status, from Ecuador’s Ministerio de Relaciones Exterior.
He added that banks may be forced to close existing accounts of U.S. citizens if required documents are not submitted.
Several U.S. expats say they have already received emails from local banks asking for additional account information. One of those, Randy Creamer, said he was not surprised. “We’ve all been expecting this. It’s just another example of the long arm of the U.S. reaching out to grab us by the throat,” he said. “I don’t blame the banks. They had to obey.”
Another banking change due to FATCA pressure is that those opening savings accounts, as well as checking accounts, will be required to hold Ecuadorian residency status. In the past, it was possible for non-residents to open savings accounts.