The US government is very specific about who financial disclosure applies to under the Foreign Account Tax Compliance Act (FATCA).
The law orders foreign financial institutions (FFI’s) to supply the Internal Revenue Service (IRS) with information on persons of US status and non-US organisations with US owners with investments in accounts outside of the US.
Advisers are offering FATCA solutions that look at some key questions:
Who has US status?
Status is all about who qualifies for US residency and who should pay tax to the IRS. To help, the IRS has highlighted six factors that indicate someone has US status if they:
- Hold US citizenship or a green card for lawful permanent residence
- Were born in the US
- Live in the US or have a US postal address, including a PO Box\
- Have standing instructions to transfer money to a US bank account or manage the account from a US address
- Hold an “in care of” or “hold mail” address that is their sole address
- Someone in the US has power of attorney or signatory authority over an account
- Having one of these indicia does not mean that the account is owned by a U.S. person, only that
Answering “yes” to one or more questions does not mean someone has US tax stats, but the IRS is likely to give close scrutiny to their financial affairs.
What types of payments are subject to FATCA?
FATCO applies to ‘witholdable’ payments, which are:
- Interest payments, dividends, rents, royalties, salaries, wages, annuities and licensing fees and other Fixed, Determinable, Annual, or Periodical (FDAP) income gains, and profits, sourced within the United States.
- Gross proceeds from the sale or disposal of US property of a type that can produce interest or dividends
- Interest paid by foreign branches of US banks
Does FATCA apply if I send someone in the family overseas money?
No. FATCA does not apply to money transfers to relatives overseas but to offshore transactions that generate an income. The aim is to make sure the person receiving the income pays the correct amount of tax.
My bank is in a country with secrecy and privacy laws – will FATCA apply?
Yes. FATCA demands the bank asks a US citizen to waive this right, and if they don’t, the bank must close the account.
What does FATCA say about joint accounts with non-US taxpayers?
If a US taxpayers holds and offshore account with a non-US taxpayer, FATCA still treats the accounts as belonging to the US taxpayer.