FATCA (Foreign Account Tax Compliance Act):
- FATCA is a United States legislation enacted in 2010 to combat tax evasion by U.S. citizens and residents holding offshore accounts.
- It requires foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers have a substantial ownership interest.
- FFIs are required to enter into agreements with the U.S. Internal Revenue Service (IRS) and disclose relevant account information to the IRS.
- Under FATCA, FFIs must identify U.S. account holders and report specific details about their accounts, including names, addresses, taxpayer identification numbers (TINs), and financial information.
- Non-compliant FFIs may face significant penalties, including a withholding tax on certain U.S. source income.
- FATCA also requires U.S. taxpayers to report their foreign financial assets on the Form 8938, which is filed along with their annual tax returns.
- The information reported by FFIs is shared with the IRS through intergovernmental agreements (IGAs) or directly through IRS reporting.
- FATCA has resulted in increased global cooperation in combating tax evasion, with many countries signing IGAs with the U.S. to facilitate compliance.
- The reporting requirements of FATCA have been implemented in various jurisdictions around the world, making it challenging for individuals to hide offshore assets and income.
- FATCA aims to promote tax transparency and enhance international tax compliance by ensuring that U.S. taxpayers report their worldwide income and assets accurately.
Please note that FATCA is a complex regulation with many intricacies and specific requirements. The implementation and enforcement of FATCA can vary across different jurisdictions, so it’s important to consult with a tax professional or financial advisor for precise and up-to-date information regarding FATCA compliance.
