The Foreign Account Tax Compliance Act (FATCA) was created to address non-reporting of income related to foreign financial accounts held by US taxpayers.
US Taxpayers who do not report their foreign accounts (Schedule B, FBAR & 8938) and foreign income to the IRS are greatly exposed.
Many countries have signed with the US government an agreement to improve international tax compliance and provide for the implementation of FATCA based on domestic reporting and reciprocal automatic exchange. Two models of agreement exist:
- The first one requires the foreign financial institutions to report to their own government which would then report to the IRS. Most countries have signed such model agreement.
- The second one requires the foreign financial institutions to report directly to the IRS. Austria, Switzerland and Taiwan have signed it.
Foreign financial institutions that do not register with the IRS will be subject to 30% withholding on certain U.S. source payments.
Individual and entities are both subject to the reporting. FATCA was enacted to detect, deter and discourage offshore tax evasion by US person (individual US citizens or US residents, partnerships or corporations organized in the US).
The foreign financial institutions identify the account holder as a US citizen or resident:
Unambiguous indication of a U.S. place of birth;
Current U.S. mailing or residence address (including a U.S. post office box);
Current U.S. telephone number
Standing instructions to transfer funds to an account maintained in the United States;
Currently effective power of attorney or signatory authority granted to a person with a U.S. address
An “in-care-of” or “hold mail” address that is the sole address the Reporting Financial Institution has on file for the Account Holder.
Where the Account Holder information unambiguously indicates a U.S. place of birth, the Reporting Financial Institution obtains, or has previously reviewed and maintains a record of:
- A self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes (which may be on an IRS Form W-8 or other similar agreed form);
- A non-U.S. passport or other government-issued identification evidencing the Account Holder’s citizenship or nationality in a country other than the United States; and
- A copy of the Account Holder’s Certificate of Loss of Nationality of the United States.
I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.
Please do not hesitate to contact me should you have any question.
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