FATCA

FATCA Regulations

The Foreign Account Tax Compliance Act, or FATCA created in 2010 is a United States federal law that requires non-American financial entities to search their records for connections to the United States. The purpose of FATCA is to encourage more accurate and overall better tax compliance by preventing United States’ citizen from using foreign banks to evade U.S. taxes

Records found under FATCA could be indications or birth records prior to residency in the United States or reports of assets and identities of people to the United State Department of the Treasury. FATCA is also responsible for requiring foreign people to report their non-American financial assets annually to the Internal Revenue Service, IRS.

FATCA indicia, which are the functions the FATCA law is searching for is as follows (from treasury.gov):

• A U.S. place of birth
• Identification of the account holder as a U.S. citizen or resident
• A current U.S. residence or mailing address (including a U.S. PO box)
• A current U.S. telephone number
• Standing instructions to pay amounts from a foreign (meaning non-U.S.) account to an account maintained in the United States
• A current power of attorney or signatory authority granted to a person with a U.S. address
• A U.S. “in-care-of” or “hold mail” address that is the sole address with respect to the account holder
• Special note: Others affected by FATCA include
  • any non-U.S. person who shares a joint account with a U.S. person or otherwise allows a U.S. person to have signatory authority on their account.
  • Any business or not-for-profit organization that allows a U.S. person to have signatory authority on a financial account.

FATCA regulations have been unpopular with American citizens living overseas and has led to a record number of people renouncing their United State citizenship. Additionally, the United States was unable to provide reciprocity to the partner countries, as designed in the original creation of the law. The goal was to have a common reporting standard so other countries could also tax Americans on their foreign assets. These new standards make it virtually impossible for American citizens to hide their money in any foreign company’s financial system.

There is a significant amount of controversy about the FATCA regulations. Mainly its complex and hard to navigate structure made doing business or calculating tax more difficult. Additionally, there are still some countries that haven’t agreed to or fully implemented the FACTA regulations, bringing in to question if this is a sustainably and equitable standard worldwide

The following countries have signed a FATCA agreement with the United States

These countries have reached “agreements in substance”

• China
• Haiti
• Indonesia
• Malaysia
• Peru
• Iraq
• Nicaragua
• Paraguay

Read more about FATCA at the US Department of Treasury: https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Sweden-8-8-2014.pdf