The Foreign Account Tax Compliance Act (FATCA) is an international tax information swapping network aimed at identifying American citizens who earn income and hold wealth outside the United States.
If you are an American citizen or hold a green card, then the Internal Revenue Service (IRS) is targeting you as a potential tax evader.
To help understand FATCA and what to do to comply if you come under the rules, here are the answers to some frequently asked questions.
Who does FATCA affect?
The US government requires all taxpayers at home and overseas to report their worldwide income to the IRS from July 1, 2014.
If you have a bank or financial account outside the US with a balance of more than $50,000 at the end of the tax year or have had transactions worth more than $75,000 in the tax year, you need to tell the IRS.
FATCA does not only apply to cash, but investments, pensions, life insurance and a wide range of financial services.
What happens if I don’t tell the IRS about my overseas finances?
The US government has a number of agreements with tax authorities in other countries who will report on the financial affairs of US citizens. The IRS will check tax returns against these reports to identify taxpayers trying to hide their overseas holdings.
Failing to declare these assets will result in a sliding scale fine starting at $10,000 and the possibility of up to eight years in jail for serious offenders.
Why is the US government bringing in FATCA?
The government believes individuals, trusts and corporations are avoiding around $500 million a year in unpaid taxes and wants to claw back some of the money.
Can I ignore FATCA if my holdings are in a country without an agreement with the US?
No. Foreign financial institutions in nations without a FATCA agreement are required to report financial information about American customers direct to the IRS. Banks and financial firms worldwide must sign up to FATCA or face penalties and even expulsion from the US banking system if they do not comply.
Around 700,000 foreign financial institutions are expected to register with the IRS under FATCA.
Which countries have signed up to FATCA?
To date, 18 countries have signed intergovernmental agreements with the US.
They include Switzerland, the UK, France, Germany, Italy, Spain and Japan, plus offshore financial centres like The Caymans, Malta, Guernsey, Jersey and the Isle of Man.
The US Treasury has announced negotiations are continuing with at least 50 other nations.
