What is FATCA – Introduction
The Foreign Account Tax Compliance Act, or FATCA, might sound like something from an international spy novel, but it’s actually a US tax law with global reach.
Enacted in 2010, FATCA was designed to combat tax evasion by US persons using foreign accounts.
Since then, it’s reshaped how banks and governments around the world interact with the IRS – and how taxpayers disclose their offshore assets.
How it Works
The rules require foreign financial institutions (FFIs) to report information on accounts held by US taxpayers or foreign entities in which US taxpayers hold substantial ownership.
If they don’t comply, the IRS can impose a 30% withholding tax on certain US-source payments made to them.
In short: cooperate, or lose money.
To make FATCA function globally, the US signed intergovernmental agreements (IGAs) with over 100 jurisdictions.
These IGAs compel local institutions to report to their own tax authorities, who then share the data with the IRS.
Who is Affected?
FATCA affects a wide range of actors:
- US citizens living abroad (including dual nationals)
- Green card holders
- Foreign banks, investment funds, insurance companies, and certain trusts
- Financial advisers and tax professionals who deal with US clients
For individual taxpayers, FATCA introduced new reporting obligations, such as Form 8938 (Statement of Specified Foreign Financial Assets), which runs alongside but is separate from the more familiar FBAR.
Global Implications
This has had far-reaching consequences.
Some foreign banks have closed accounts held by US persons rather than deal with the compliance burden.
Others have upgraded their due diligence procedures significantly.
FATCA also sparked international efforts to develop broader information exchange frameworks.
What is FATCA – Conclusion
FATCA isn’t just about Americans. It was a turning point in global tax transparency and signalled the start of a wider crackdown on hidden offshore wealth.
Final Thoughts
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