FATCA stands for the Foreign Account Tax Compliance Act. It was legislated in the U.S in 2010 and seeks to identify and increase compliance by U.S. Citizens and U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts - either in their own name or indirectly through corporations or trusts. FATCA requires foreign financial institutions (FFIs) and foreign governments, at their own expense, to report to the Internal Revenue Service (IRS) their U.S. person account holders.
In June 2014, the IRS began publishing a monthly on-line list of registered FFIs
U.S. Citizens, U.S. persons (Green Card holders), and U.S. entities (companies, trusts) who place assets in foreign (non-U.S.) accounts - either in their own name or indirectly through corporations or trusts.
As of now, the U.S. Treasury has indicated that special exceptions will not be provided to certain countries. Signatory countries have been able to negotiate the ability to exclude certain products and entities as non-reporting financial institutions and products in the Annex II of the intergovernmental Agreement (IGA).
Foreign Financial Institutions (FFIs) will have to enter into contractual agreements with the U.S. Treasury to identify and report U.S. persons. Further, U.S. and FFIs will have to withhold 30% on U.S. sourced, and pass through payments to foreign institutions/individuals that do not comply.
Also, FATCA rules require any U.S. customer to waive their rights under the privacy or secrecy rules within any country while doing business with FFIs so that their information can be reported to the U.S. Government. If they refuse to provide this waiver then the FFI is required to close the account.
i. A U.S. address associated with an account holder of the account;
ii. A US place of birth for an account holder of the account;
iii. An "in care of" address, a "hold mail" address, or a U.S. PO address that is the sole address on file with respect to the account holder;
iv. A power of attorney or signatory authority granted to a person with a U.S. address; or
v. Outstanding instructions to transfer funds to an account maintained in the U.S., or directions received from a U.S. address.
FATCA provisions apply to "With-holdable payments". "With-holdable payments" are defined as:
Any payment of interest (including any portfolio interest and original issue discount), dividends, rents, royalties, salaries, wages, annuities, licensing fees and other fixed or determinable annual or periodical income, gains, and profits, if such payment is from sources within the U.S.
FFIs will collect withholding certificates (forms W-8, W-9 or substitute forms)
Exempt from review
Accounts with a balance or value not exceeding $50,000
Subject only to review of electronically searchable data for indicia of U.S. status
Accounts with a balance or value that exceeds $50,000 ($250,000 for cash value or annuity contract) but does not exceed $1,000,000.
Subject to review of electronic and nn-electronic files for indicia of U.S. status
Accounts witht a balance that exceeds $1,000,000.
Exempt from review
Accounts with a balance of $250,000 or less, until account balance exceeds $1,000,000.
FFI required to review account opening documentation
Includes any documentation collected under AML/KYC rules
Identification of U.S. indicia
Obtain additional information, or treat as recalcitrant account holder
FFI must determine whether entity has any substantial U.S. owners through certification from account holder
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