U.S. TAX GUIDE IN BRAZIL
What is FBAR, and when do US expats in Brazil need to file it?
US expats in Brazil will need to file the FBAR if their combined highest balance of all their foreign financial accounts exceeds US$10,000 at any point during the calendar year.
This isn’t just about bank accounts—you need to include savings accounts, brokerage accounts, and even certain PayPal accounts.
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Why do you need to file the FBAR?
It’s because the IRS wants to know about your foreign financial accounts; it’s important to remember that it’s only for reporting purposes and to impose any tax.
However, not filing the FBAR can lead to penalties, so it’s best to meet this requirement if your accounts exceed that US$10,000 threshold.
What happens if you have multiple accounts?
Even if no single account holds more than US$10,000, you still need to file if the combined total of all your accounts exceeds that limit.
For example, if you have US$7,000 in one account and US$4,000 in another, both accounts must be reported because their total is more than US$10,000. Even accounts with zero balance must be reported if other accounts push the total above the threshold.
Do US expats need to report joint foreign accounts on the FBAR?
Yes, US expats need to report joint foreign accounts on the FBAR if the combined value of all your foreign accounts exceeds US$10,000 at any time during the year.
This rule applies even if you share the account with someone else, like a spouse or business partner.
Here’s how it works: If you share a foreign account with another person, and the total value of that account plus any other foreign accounts you own or have authority over goes over US$10,000 at any point during the year, you must report it on the FBAR. Each person who owns or has control over the account needs to file their own FBAR.
For example, if you and your spouse have a joint bank account in Brazil with US$12,000 in it at any time during the year, both of you need to file an FBAR, even if you don’t have any other foreign accounts.
If you don’t report these accounts, you could face serious penalties.
Also, if you have the authority to sign on a foreign account but don’t have a financial interest in it—like if you manage an account for your employer—you might still need to report it on the FBAR.
How does FATCA relate to FBAR?
Many people get confused between the FBAR and FATCA, or the Foreign Account Tax Compliance Act.
FATCA is a law that requires foreign financial institutions, including banks in Brazil, to report information about accounts held by US citizens to the IRS.
This is why your Brazilian bank might ask if you’re a US citizen and request your Social Security number—they’re complying with FATCA requirements.
What is Form 8938, and how does it differ from the FBAR?
While the FBAR is filed separately through the Financial Crimes Enforcement Network (FinCEN), Form 8938 is filed with your tax return if you meet certain thresholds.
This form requires similar information to the FBAR but covers a wider range of foreign assets.
The thresholds for filing Form 8938 are higher than for the FBAR and depend on your filing status and whether you live inside or outside the U.S.
Does FATCA replace the FBAR?
No, FATCA does not replace the FBAR.
Both are required if you meet the criteria.
FATCA requires your bank to report your accounts to the IRS, it doesn’t relieve you of your obligation to file the FBAR and Form 8938.
The IRS cross-references the information from your filings with the data provided by your bank to ensure accuracy.
What are the penalties for not filing the FBAR on time?
It depends on whether the IRS thinks you didn’t know about the requirement (non-willful) or if you purposely ignored it (willful).
- Non-Willful Violations: If you didn’t know about the FBAR requirement and didn’t file, the IRS might consider this a non-willful violation. The penalty for this can be up to US$10,000 per account. However, if the IRS believes your mistake was due to reasonable cause, they might waive the penalty.
- Willful Violations: If the IRS thinks you knowingly ignored the FBAR requirement, the penalties are much tougher. The penalty can be either US$100,000 or 50% of the balance in the account at the time of the violation—whichever is greater. This penalty applies per account, per year. In extreme cases, there could also be criminal charges, which might lead to additional fines and even jail time.
- Criminal Penalties: If your violation is considered willful and severe, criminal penalties may apply. This could mean fines up to US$250,000 and/or up to five years in prison. If the case involves a pattern of illegal activity, fines could go up to US$500,000, and the prison sentence could be as long as ten years.
Can FBAR penalties be waived if you didn’t know about the requirement?
Yes, in some cases, FBAR penalties can be waived if you didn’t know about the requirement. If you can show that your failure to file was due to reasonable cause—like not being aware of the FBAR rule or misunderstanding it—the IRS might consider waiving the penalties.
To get the penalties waived, you’ll need to explain to the IRS why you didn’t file on time.
This usually involves showing that you were unaware of the requirement and that you took steps to fix the mistake as soon as you found out about it.
For example, if you didn’t know you needed to file the FBAR but filed it right away after learning about it, the IRS might waive the penalties.
You’ll also need to provide evidence that you had a reasonable cause for not knowing, like if you’re a first-time filer or misunderstood the rules.
The IRS reviews each situation individually to decide if a penalty waiver is appropriate.
However, even if the IRS waives the penalties, you’re still required to file the FBAR. The waiver only applies to the penalties, not the filing itself.
