FATCA

Home Services FATCA

FATCA, or the Foreign Account Tax Compliance Act,
is a U.S. federal law enacted in 2010 aimed at combating tax evasion
by U.S. persons holding accounts and other financial assets
outside the United States. Here's a detailed overview:

Purpose of FATCA

Tax Compliance: FATCA seeks to increase transparency regarding the financial activities of U.S. citizens and residents with foreign financial institutions (FFIs) and foreign entities.
Prevent Tax Evasion: The law targets individuals who may hide assets in foreign accounts to evade U.S. taxes.l

Key Features of FATCA

1. Reporting Requirements:

FFIs: Foreign banks and other financial institutions are required to report information about U.S. account holders to the IRS. This includes account balances, transactions, and personal information.
U.S. Taxpayers: U.S. citizens and residents with foreign financial assets exceeding certain thresholds must report these assets on IRS Form 8938, which is part of their annual tax return.

2. Thresholds for Reporting:

The reporting threshold for individuals varies based on filing status (single, married filing jointly, etc.) and whether the taxpayer resides in the U.S. or abroad. For example, a single filer living in the U.S. must report foreign assets if their total value exceeds $50,000.

Trusted by
Top Companies

3. Intergovernmental Agreements (IGAs):

Many countries have entered into IGAs with the U.S. to facilitate compliance with FATCA. These agreements outline how foreign governments will help collect and transmit information about U.S. account holders to the IRS.

Consequences of Non-Compliance

Penalties for FFIs: If foreign financial institutions do not comply with FATCA, they may face a 30% withholding tax on certain U.S.-source payments, including dividends and interest.
Penalties for U.S. Taxpayers: Failure to report foreign financial assets can lead to significant penalties, including a $10,000 penalty for non-filing and additional penalties for underpayment of taxes.

Impacts of FATCA

Global Reach: FATCA has prompted many countries to adopt similar transparency measures to comply with U.S. regulations.
Increased Reporting: The act has significantly increased the volume of information exchanged between financial institutions and tax authorities worldwide.
Challenges for U.S. Expats: Many U.S. citizens living abroad face challenges with FATCA compliance, as some foreign banks may refuse to open accounts for U.S. persons due to the reporting requirements.

FATCA represents a significant effort by the U.S. government
to ensure tax compliance among its citizens and residents with
foreign financial accounts. While it aims to reduce tax evasion,
it has also led to increased complexity and challenges for
both individuals and foreign institutions navigating its requirements.
Understanding FATCA is essential for U.S. taxpayers with international financial interests to avoid penalties and ensure compliance.