FATCA Information, Details and Advice

Foreign Account Tax Compliance Act, also known as FATCA, guides foreign financial institutions through the steps they must take to ensure any of their clients who are US taxpayers declare all earnings or profits from offshore assets on their tax returns.

The Foreign Account Tax Compliance Act is a 388-page rule book issued by the US Treasury outlining exactly what foreign financial institutions must do to maintain their obligations under law.

The responsibility for reporting lies with the financial institution or adviser managing the asset rather than the individual. In theory, the US Treasury has to control fewer financial institutions than taxpayers – and the Treasury can exact penalties to make the institutions toe the line far easier.

However, the burden also falls on individual US expats and the concern over what will happen to their taxes is increasing as the deadline approaches.

“When taxpayers avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden. FATCA is an important part of the US government’s effort to address that issue, and these regulations implement FATCA in a way that is targeted and efficient. We believe these efforts will serve as a complement and catalyst to the ongoing global efforts to combat offshore tax evasion.” said Acting Assistant Secretary for Tax Policy Emily S. McMahon.

Who does FACTA affect?

FATCA is aimed at foreign financial institutions and US taxpayers with investments overseas.

A foreign financial institution (FFI) is any foreign bank, investment house, insurance company or other financial institution that holds cash, equities or other financial assets for US taxpayers or any organisation in which a US taxpayer may have a ‘substantial’ interest, like an offshore company or trust.

An FFI has to identify which clients are US citizens and then relay a detailed report about their earnings or gains to the Internal Revenue Service (IRS) every year.

What US taxpayers must do under FACTA

US taxpayers must file Form 8938 along with an annual tax return if they held assets worth $50,000 or more overseas after March 18, 2010. The taxpayer should list any offshore assets or income on the form and tax return.

Those failing to report foreign investments will suffer a $10,000 fine – which can increase up to $50,000 for a continuing offence.

The IRS will also top up any underpaid tax from failing to notify with a 40% surcharge.

What foreign financial institutions must do under FATCA

FFIs must report details of all accounts held directly or indirectly by US taxpayers.

To file this report, the FFI will have to sign up with the IRS by June 30, 2013 to:

Carry out identity checks on account holders

File an annual report on any accounts held by US taxpayers that includes:

  • The name, address and taxpayer identification number (TIN) of each US account holder
  • If the account holder is owned by a US entity, the name, address, and TIN of each substantial US owner of the entity
  • The bank account number
  • The end of year account balance or value in US dollars
  • Gross receipts and withdrawals in the year
  • The gross amount of dividends paid to the account
  • The gross amount of interest paid to the account
  • Other income paid or credited to the account
  • Gross proceeds from the sale of property paid to the account
  • The branch that maintains the account.

Collect a 30% withholding tax for the IRS on income coming from the US or the proceeds of any asset disposal generating US sourced income if the money goes to:

  • A FFI without an agreement with the IRS
  • Account holders who fail prove they are not US taxpayers
  • A foreign organisation that does not prove the owners are not US taxpayers

FFIs must start withholding tax from January 2014 – and any FFI that fails to make FATCA reports will face fines and possibly a ban on trading in the US.

Identifying US taxpayers

Under general ‘Know Your Customer’ and money laundering rules, most FFIs will already know whether an account holder is a US tax resident.

For accounts opened after July 1, 2013, the FFI will request a Form W-8 or other US government documentation, like a passport, to establish whether the account holder is a US taxpayer.

How will withholding tax work?

The withholding rules will be phased in over a number of years – starting with US sourced income payments, like rents, interest on savings or dividends, on January 1, 2014.

Next comes the gross proceeds from disposal of property that generates US-sourced interest or dividends from January 1, 2015.

From January 1, 2017, FFIs will have to report pass-through payments from other FFIs that have hit the accounts of US taxpayers.

What happens to FATCA information?

To ease the reporting burden for FFIs, the US and some other governments, like the UK, France, Spain, Germany, Japan and Italy, have agreed to share financial information about US citizens.

In effect, this sets up an international network that switches tax information between countries, with the US agreeing to reciprocate data from abroad by sending information from US financial institutions back through the network.

The end result is the IRS will receive masses of data about the offshore financial affairs of US taxpayers, while other countries will gain similar financial data about their taxpayers with holdings in the US.

Tax agencies in every country which joins the network will cross-compare the information with tax returns and other government documents to make sure everyone is declaring and paying the correct amount of tax in each country.

Find out about FATCA countries that have signed up.

More information

Try the IRS FATCA information pages online here.


FATCA is designed to stop US taxpayers hiding their money offshore to avoid tax. 

Many US taxpayers, especially expats, are unaware of FATC and what it means to their personal finances.

Here are some answers to the most asked questions about FATCA

What does FATCA stand for?

FATCA is short for the Foreign Account Tax Compliance Act.

What is the FATCA list?

The FATCA list is a database of financial institutions outside the States that have registered as compliant with FATCA reporting standards

What are the FATCA reporting standards?

Foreign financial institutions must supply the US Internal Revenue Service with a list of accounts controlled by US taxpayers each year. Depending on if the taxpayer lives in the US or overseas, the reporting rules differ

Who does FATCA apply to?

Any US taxpayer with offshore accounts or investments

Do US expats have to be FATCA compliant?

No, FATCA applies to the financial institution not taxpayers. However, the reports made under FATCA are compared with IRS tax filings to make sure taxpayers are paying the right amount of tax and not failing to declare their liability

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