PERSPECTIVE3-5 min to read

American overseas? From FATCA and FBAR to IRAs and PFIC – all US expat jargon explained

US citizens at home and overseas face unique challenges around tax and investments. Here's the terminology you're likely to encounter - explained in plain English



Martin Heale
Portfolio Director
Emily Kidd
Portfolio Manager
Janette Saxer
Portfolio Director

Are you an American citizen living outside of the US? If so, you are going to need to familiarise yourself with a mind-boggling dictionary’s-worth of acronyms and jargon, relating both to your citizenship status and to the plethora of US rules and requirements that you need to observe.

From tax and pensions to business shareholdings and bank accounts, the US authorities require a range of information from Americans overseas – and failure to comply can result in penalties for both individuals and businesses.

What’s more, the rules are constantly changing. The arrival of Donald Trump in the White House in 2016, for example, saw a raft of changes in the way US expatriates are taxed – with many of the implications still far from clear, more than two years into his presidency.

Schroders Wealth US Ltd is among a small number of global businesses which specialise in offering wealth management services to US citizens wherever they live around the world, focusing on investors with a minimum £1 million or currency equivalent. We understand the unique difficulties facing this group.

What follows is a list of what we have found to be among the most commonly-used jargon and technical terminology relating to the American expatriate experience – with explanations in plain English.

“Accidental American”

An “accidental American” is a citizen of a country other than the US but who is also deemed by the American authorities – and in particular the US tax authorities – to be a US citizen or, more technically, a “US person”.

In many cases accidental Americans are unaware of their status as “US persons,” or only discover it only when they are quizzed by their bank or other financial provider, such as an investment manager.

Most accidental Americans – or “accidentals” as they are sometimes called  – were born in the US but left almost immediately and grew up elsewhere. Some gained their citizenship through their American parents. There has also long been a mistaken assumption that where someone becomes a citizen of another country, they automatically cease to be a US person. This is a potentially costly mistake. In the eyes of the US authorities, such individuals’ US status, and  in particular their tax and other reporting obligations, continue.


A variation on the word “suicide”, this is a relatively new, and grim, slang term used mainly on social media by frustrated American expats to describe the act of having to voluntarily renounce their US citizenship because, they say, it’s the only way to be free of the reporting and tax-related complications of being an American trying to lead a normal life outside the States. On Twitter, one recent commentator wrote: “Should Americans be forced to commit #citizide because they can't get the bank accounts they need?”

“Covered individual” or “covered expatriate”

The word “covered” in reference to an American who lives outside of the US is a definition the Internal Revenue Service uses to determine how they would be handled if they were, for example, to seek to renounce their citizenship.

An expat individual is deemed to be a “covered” expatriate if they meet any of the following conditions: they have an average annual net income for the five preceding tax years, ending before the date they ceased to live in the US, which exceeds US$165,000 (adjusted for inflation in 2018); they have a net worth, globally, of US$2 million or more, as of the date they left the US to live abroad; and they have not complied with all their US federal tax obligations for the past five years.

CRS: Common Reporting Standard

The Common Reporting Standard, known more formally as the Standard for Automatic Exchange of Financial Account Information, is a new information reporting framework set up under the auspices of the Organisation for Economic Cooperation and Development. It establishes a system for enabling the automatic exchange of financial information (AEOI) between constituent countries.

The CRS’s information-sharing concept is seen as borrowing heavily from the Americans’ Foreign Account Tax Compliance Act (FATCA), which came into force globally in 2014.

The US is not currently a signatory to the CRS, which began to come into force in 2017, arguing that because of FATCA it has no need to be.

DTA: Double Tax Agreement

Double tax agreements exist between countries that seek to eliminate the risk of individuals and companies being taxed twice for the same thing. They may be bilateral or multi-lateral. They can be extremely important for American expats, as they help to ensure such individuals aren’t taxed by both their current country of residence and the US on the same income.

FATCA: Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act was signed into law by President Obama in March, 2010, as part of a piece of domestic jobs legislation known as the HIRE Act, and changed forever the way Americans overseas were treated by financial institutions at home and abroad. It is seen as the main reason many American expats and dual citizens have renounced their citizenships over the last few years and continue to do so.

FATCA requires all non-US (“foreign”) financial institutions to report the assets and identities of any US account-holders they have on their books to the US IRS. This has resulted in many of these non-US financial institutions refusing to have Americans as clients, making life difficult for Americans living outside of the US as they can struggle to get bank accounts, mortgages or investment services.

FBAR: Foreign Bank Account Report

Alongside one’s tax return, FBARs are one of the most important reporting requirements Americans living overseas face each year, reflected in the severity of the penalties for those who fail to do so. FBARS had their origins in the Bank Secrecy Act of 1970, which was aimed at cracking down on money laundering and other financial crimes.

In essence you are expected to file an FBAR – effectively reporting the value of your account balances - if the total value of all of your overseas bank accounts is more than $10,000 on any day in the tax year, even if it’s split between two or more accounts.

FDII: Foreign-derived Intangible Income

FDII is among a number of new acronyms created in December, 2017, by Donald Trump’s tax reform legislation the Tax Cuts and Jobs Act. It refers to what some tax experts say is a new “deduction opportunity”, potentially capable of reducing the effective tax rate on qualifying income to 13.125%.

FDII is a newly-designated category of income. Under the new tax law, a fixed rate of return is assumed on a corporation’s tangible assets, and any remaining income is then deemed to have been generated by intangible assets.

FFI: Foreign Financial Institution

The term “Foreign Financial Institution” was formally created by FATCA, the 2010 Obama legislation that aimed to make it more difficult for Americans to hide financial assets outside of the US. FATCA effectively created a new category of non-US financial services institution – the “Foreign Financial Institution” – which, to look after the assets of US citizens, must register with the US IRS. The FFI must agree to report, in the words of the IRS, “certain information about their US accounts, including accounts of certain foreign entities with substantial US owners”.

Under FATCA, these FFIs are required to withhold 30% on certain payments to these American clients if these clients fail to comply with their tax reporting obligations.

Examples of the types of institutions considered to be FFIs by the US definition include banks and other depositary institutions, mutual funds and other custodial entities, and such investment structures as hedge funds or private equity funds.

Certain types of insurance companies offering services such as annuities may also be considered FFIs.

Unless otherwise exempt, FFIs that do not both register and agree to report to the IRS on their American clients’ holdings face a 30% withholding tax on certain US-source payments made to them.

FY: America’s fiscal year

The fiscal year is a US government term which applies to the federal government’s traditional accounting period and it begins on October 1 and ends on September 30.

Fiscal year is also a term used to describe the tax year that some US taxpayers adhere to by choice or necessity. A “fiscal year”, for tax reporting purposes, according to the IRS, can be any period of 12 consecutive months ending on the last day of any month except December (which would make it a calendar year).  Scroll down for “tax year”.

HCTA: Host country tax authority

This term refers to the tax authority in the country in which an expatriate is resident. For example, for an American living in the United Kingdom the HCTA would be HM Revenue & Customs.

IRA: Individual Retirement Account

The Individual Retirement Account is a type of tax-advantaged retirement plan that is standard in the US. It is provided by US financial institutions, although Americans who move abroad sometimes find that the institutions which have long overseen their IRA accounts no longer wish to have them as clients because of the added reporting requirements, and thus the costs involved.

JCT: Joint Committee on Taxation

The Joint Committee on Taxation is a non-partisan committee of the US Congress, originally established under the Revenue Act of 1926. It is made up of members of both houses of Congress who work with input from economists, attorneys,  accountants and others to draft the US’s tax laws. Recently the JCT has been involved in considering how the US tax regime might be changed to make it fairer for expatriate Americans.

OVDP: Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program was a regime that enabled American expats who had not been filing tax returns - or paying taxes they may have owed to the US - to become compliant without facing the often-significant penalties they would otherwise likely incur.

The program closed on September 28, 2018, after running for more than eight years in various forms. In March 2018, the IRS reported that more than 56,000 taxpayers had come forward since the OVDP programs began, paying a total of US$11.1bn in back taxes, interest and penalties.

PFIC: Passive Foreign Investment Company

A Passive Foreign Investment Company is a US government term for a range of fairly conventional pooled investments – such as mutual funds, hedge funds, insurance products and non-US pension plans – that are registered outside of the United States.  

A bank account might also be a PFIC if it's a money-market fund rather than simply a deposit account, because money market accounts are essentially short-maturity fixed-income mutual funds.

The tax treatment of PFICs is extremely punitive compared to the tax treatment of similar investments that are incorporated in the US. There are also burdensome reporting rules to take into account.

PFIC rules can, and often are, applied as well to investments held inside foreign pension funds, unless those pension plans are recognized by the U.S. as “qualified”, under the terms of a double-tax treaty between the U.S. and the host country. 

QDOT: Qualifying domestic trust

A qualifying domestic trust, or QDOT, is a type of trust that allows the spouses of US citizens, who are not US citizens themselves, to claim the marital deduction for estate-tax purposes. Without such a trust, spouses without US citizenship are not eligible for the marital deduction.

Some people say it’s a better choice than having the spouse apply for US citizenship, as it’s typically easier and faster, but it needs to be established carefully.

QROPS: Qualifying recognised overseas pension scheme

QROPS are a type of overseas pension scheme in the United Kingdom that meets certain requirements set by HMRC, and which thus may receive transfers of UK pensions without incurring a tax penalty  (such as an unauthorised payment charge). They came into being after a change in the UK’s pension legislation in 2006, as part of a pan-European move to make it possible for financial services  transactions to take place freely across EU borders.

Americans who are considering transferring their UK pensions into a QROPS (sometimes now referred to as simply a “ROPS”) should seek advice as there can be major US  tax problems if they are structured incorrectly.

RMD: Required minimum distribution

Required minimum distribution is a term that relates to US individual retirement accounts (IRAs). The RMD is the amount that the US government requires those who have IRAs to withdraw annually from their traditional IRAs, as well as from any employer-sponsored retirement plans they may have.

They are required to begin making such withdrawals from their IRAs no later than April 1 of the year following the year in which they reach the age of 70½ . (The rules for employer-sponsored retirement plans may vary slightly from this.)

In recent years, Congress has enabled individuals who want to avoid having to pay tax on the RMD income to direct their RMD payments directly to a charity.

SCE: Same country exemption

The same country exemption is an idea first proposed by the American Citizens Abroad (ACA) in 2015 as a means of helping American citizens living overseas to maintain foreign bank accounts, and otherwise live normally with respect to financial products such as loans, mortgages and investments, in spite of the FATCA regulations.

Under FATCA,  non-US banks and other foreign financial institutions are obliged to report on US account holders’ accounts, which, as the ACA has noted, has resulted in these institutions “turning away American customers or asking existing American customers to find another” institution willing to look after them – a phenomenon the ACA calls “lock-out”. The same country exemption would enable those US taxpayers who “truly reside” in a foreign country to have their “normal” local banking accounts exempt from the FATCA reporting rules.

Thus far, the SCE has yet to make much progress in Congress.

SICAV: société d’investissement à capital variable

The SICAV, (or “société d’investissement à capital variable”, in French), is an open-ended collective investment structure that is a mainstay of the European investment landscape. SICAVs are similar to America’s open-ended mutual funds. SICAVs are not generally recommended for Americans because of the way the US taxes such assets.

TCJA: Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was a package of major changes to the US tax code signed into law by US president Donald Trump on 20 December, 2017. The law was adverse for American expatriates as it contained a number of provisions that affected them and their offshore holdings.

The act included a provision relating to certain foreign companies known as “controlled foreign corporations”, or CFCs, defined as non-US corporate entities that are controlled by US shareholders.

Under the TCJA, such entities will be subject to new US taxes – a “deemed transition tax” and a new minimum tax on foreign earnings, known as the “global intangible low-taxed income” tax or GILTI. Both have been the subject of significant protest in the expatriate community.

UCITS: Undertakings for Collective Investment in Transferable Securities

UCITS (Pronounced “yoo-sits”) refers to a set of European Union directives, stemming from  the 1980s, that enabled collective investment schemes to operate freely throughout the EU, on the basis of a single authorisation from one member state. In practice, however, many EU member nations have imposed additional regulatory requirements.

The idea didn’t actually take off until the original legislation was tweaked in 2001 (UCITS II and UCITS III).

A measure of the success of the concept is the degree to which UCITS funds have been embraced by investors in such markets as Asia and Latin America. However, UCITS funds are not recommended for American investors, even if they live outside of the US, owing to the way the US taxes such investments.

TY: Tax year

The tax year is a time frame used by tax authorities around the world to structure their tax regimes. In the US, the Internal Revenue Service allows most businesses the choice of using a  calendar year or the company’s own fiscal year as its tax year.

As for individual Americans’ tax year, the US norm is a calendar year ending on December 31, with tax returns due on the 15th of April the following year.

Expatriates, though, have an extra two months to file (making their deadline June 15th).

Author: Martin Heale, Portfolio Director

This article is issued by Schroder Wealth Management (US) Limited, a firm authorised and regulated by the Financial Conduct Authority and registered as an investment adviser with the US Securities and Exchange Commission. Registered office at 1 London Wall Place, London EC2Y 5AU. Registered number 10761882 England. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Schroder Wealth Management (US) Limited unless otherwise stated. For your security, communications may be recorded and monitored.


Martin Heale
Portfolio Director
Emily Kidd
Portfolio Manager
Janette Saxer
Portfolio Director


How to

Our minimum sum for investment management

Our services start at £1 million or currency equivalent for discretionary services or £10 million or currency equivalent for advisory services.

The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.