Foreign Account Tax Compliance Act (FATCA) is a U.S. legislation to prevent tax evasion by U.S.
citizens, through the use of offshore accounts.
FATCA was enacted on March 18, 2010 - IRS Sections 1471 through 1474.
It requires Foreign Financial Institutions (FFIs) to register with US Internal Revenue Service (IRS) and report certain information about
US account holders to the IRS, either directly or through the home country tax authority.
It also requires Non-Financial Foreign Entities (NFFEs) to disclose the identity of their US owners to the IRS.
FATCA imposes a penalty of 30% withholding tax on payments made to non-participating FFIs and recalcitrant account holders, who refuse to participate with the IRS and fails to comply with the following requirments:
Enter into an agreement with the IRS and becoming a “Participating” Foreign Financial Institution’s (PFFI)
Obtain information on account holders necessary to determine if accounts are “U.S. Accounts”
Comply with due diligence/verification procedures
Report certain information to the IRS on an annual basis
Deduct and withhold 30% on U.S. source withholdable payments made to "recalcitrant account holders" or Non-Participating FFIs
Request a waiver from any U.S. account holder if disclosure would otherwise be prohibited on the basis of non-U.S. law (e.g., privacy or bank secrecy laws), and close the account if the account holder refuses to cooperate; and
Comply with any requests by the U.S. government for additional information for US accounts.
FATCA Reporting Requirements
FATCA requires reporting on the all accounts that are identified and documented as reportable accounts:
Specified U.S. Persons (entities)
Owner-documented FFIs with specified U.S. Owners
Passive NFFEs with Substantial U.S. owners/Controlling Persons
Nonparticipating FFIs with respect to payments made to in 2015 and 2016
Recalcitrant account holders (under the FFI agreement and Model 2 IGA)
FATCA Reporting Forms
More IRS forms