Foreign Account Tax Compliance Act is a 2010 US tax law that requires foreign financial institutions to identify and report financial accounts held by US persons.
The Foreign Account Tax Compliance Act (FATCA) was enacted as part of the US Hiring Incentives to Restore Employment (HIRE) Act of 2010 and codified at sections 1471 to 1474 of the Internal Revenue Code. Its goal is to deter US persons from hiding income in foreign accounts.
The mechanism is leverage: any Foreign Financial Institution (FFI) that does not enter into an agreement with the IRS, or comply through an Intergovernmental Agreement (IGA), faces a 30 percent withholding tax on US-source payments it receives.
In practice almost every meaningful financial institution outside the United States has registered with the IRS as a Participating FFI or operates under a Model 1 or Model 2 IGA between its government and the US Treasury. Under Model 1 the FFI reports US-account information to its own tax authority, which then exchanges it with the IRS. Under Model 2 the FFI reports directly to the IRS.
FATCA applies to US persons, which includes US citizens and green-card holders regardless of residence, and to entities classified as US under Treasury Regulation 1.1471. The reporting threshold is account-level: aggregated US-person balances above 50,000 USD for individuals or 250,000 USD for entities generally trigger reporting, with lower thresholds in some IGAs.
You will encounter FATCA when opening any non-US bank or brokerage account if you are a US citizen, green-card holder, or US tax resident; when forming a non-US entity with US shareholders or directors; and when filling in W-9 (US persons) or W-8BEN/W-8BEN-E (non-US persons) forms at any FFI.
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