FATCA: The Foreign Account Tax Compliance Act

  • The Foreign Account Tax Compliance Act is abbreviated as FATCA. This tax compels U.S. citizens living in the United States or overseas with financial assets in the United States to file annual reports of their foreign account holdings and pay U.S. tax. U.S. taxpayers are required to report all assets kept outside the country once a year under this tax. It facilitates cross-border tax compliance by establishing a worldwide standard for the automatic exchange of information on US taxpayers.
  • FATCA wants to give the Internal Revenue Service (IRS) more information about Americans who have invested and profited through non-US institutions in other countries.
  • Non-U.S. Foreign Financial Institutions (FFI) and Non-Financial Foreign Entities (NFFE) must also follow the law by reporting the identities of U.S. citizens and the amount of their assets kept in their banks to the Internal Revenue Service (IRS) through the FATCA Intergovernmental Agreement (IGA). FFIs that do not obey the IRS’s rules are expected to be barred from the US market and compelled to pay a tax penalty of 30% of any withholdable payment.
  • Each account holder who is a U.S. citizen must have his or her name, address, and tax identification number (TIN) reported by FFIs and NFFEs that follow the law. They also provide the account number, balance, and deposits and withdrawals in a convenient format.

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