If you are a US taxpayer or a bank compliance officer and haven’t heard of the Foreign Account Tax Compliance Act (FATCA), you’ve probably been locked in a darkened room with no access to the media for some months.
FATCA is the US government law that forces US taxpayers and financial institutions outside Am Erica who do business with them to tell the Internal Revenue Service about their accounts and money they make every year.
For those who need a FATCA refresher, here’s a quick list of frequently asked questions:
What is FATCA?
The Foreign Account Tax Compliance Act
What is FATCA for?
The US government believes too many Americans have secret offshore accounts on which they are avoiding tax, and the government wants a slice of that money to boost revenues
Who is affected?
Any US taxpayer, whether residing in America or elsewhere who has an account with a financial institution outside the US with a balance of more than $50,000 at the end of the tax year or where the balance has exceeded $75,000 during the tax year.
How does FATCA work?
The US government with has an agreement with another government that allows the IRS and that other nation’s tax authority to swop information about US taxpayers and their finances or, if the governments have no agreement, the financial institution must give the same information direct.
What happens if the bank doesn’t play ball?
The IRS slaps a 30% withholding tax on all financial transactions in the US made by the bank – including ‘passthru’ payments made by third parties on that bank’s behalf. As international banks tend to denominate their transactions in US dollars, the withholding tax makes doing in business on the US markets difficult for a financial institution.
What is a financial institution for FATCA?
FATCA names several classifications of organization, but the main ones are banks, investment funds and insurance companies
Which countries have agreement with the IRS?
According to the latest information from the IRS and US Treasury –
- Intergovernmental agreements (IGA) are ready to sign or have been signed with Britain, France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway
- IGAs are under negotiation with: Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden
- These countries have indicated they want to discuss signing an IGA: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Sint Maarten, Slovenia, and South Africa.