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What is FATCA?

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act, or FATCA, is a US federal law that is intended to target US Persons who may be concealing assets held in foreign accounts.

FATCA compliance and international reporting

To facilitate this, some foreign entities must report their US clients or owners directly (or indirectly, through their local tax authorities) to the IRS. FATCA has classed all non-US entities into two categories: foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs)

Foreign Financial Institutions (FFIs)

The definition of an FFI encompasses a range of financial institutions or entities that qualify with one or more of the following:

  • Accept deposits in the ordinary course of business
  • Hold financial assets for others (e.g. custody or nominee services)
  • Are primarily engaged in investing, reinvesting or trading in securities or commodities
  • Certain types of insurance companies
  • Holding company/treasury centers

FFIs are required to report to the IRS directly, or through their local revenue government agency, information about financial accounts held by US Persons.

Non-Financial Foreign Entities (NFFEs)

Certain NFFEs (any entity not classified as an FFI) must also report or certify their ownership.

Are there penalties for noncompliance?

Failure to comply with these reporting rules by either FFIs or NFFEs will result in the imposition of a 30% penalty withholding tax on their US-sourced income or gains. This penalty does not offset any income tax dues.

How will this impact US Persons?

When an FFI/NFFE identifies their US Persons in accordance with FATCA, they report them to the IRS. The IRS will then check their systems to see if the US Person has filed a properly completed FBAR, income tax and informational returns. If these returns have not been correctly filed, the US taxpayer could be subject to civil penalties and possible criminal charges.

Get up to date with FATCA compliance

US Persons who have not filed, or correctly filed, their US tax returns or information reports should strongly consider getting up to date for prior tax years. We have helped individuals in the United States and throughout the world bring themselves successfully up to date. (See Voluntary Disclosure).

Related Links:

FATCA Services

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant