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FATCA facts

10 Things you may not know about FATCA

As of January 1st 2013, foreign banks will be forced to report information about US clients directly to the US authorities. However, becoming FATCA compliant hides numerous legislative challenges that require extensive compliance standards and procedures. This will require an in-depth understanding of the new regulation which may be rather confusing to clients.

Here are some essential facts:

  1. Individuals that hold $50,000 or more are subject to FATCA compliance requirements.
  2. FATCA is beyond personal. Individuals and foreign financial institutions alike will be subject to a 30% tax on their income if they fail to become FATCA compliant. This means foreign banks, brokers/dealers, insurance companies, hedge funds, securitisation agencies and private equity funds that have business with US citizens or organisations.
  3. If a US citizen living abroad falls into FATCA compliance category and has not been reported to the US authorities, the bank’s compliance offer could be personally charged with perjury.
  4. The cost of becoming FATCA compliant is estimated to be up to £126 million for each Foreign Financial Institution – which is why many are now refusing US clients.
  5. At the time of writing, the UK, Germany, Italy and Spain have signed intergovernmental agreements that commit financial institutions to disclose information on American clients to the US tax authorities.
  6. Reciprocal agreements between countries mean that authorities will be able to ask US financial institutions to reciprocally disclose information about the holdings of their citizens.
  7. FATCA also applies to life and pensions insurance in markets where there is a savings element to the policy.
  8. Due to Client Privilege, lawyers are not required to disclose the identity of their US clients when they approach the tax authorities.
  9. Financial institutions are also required to review existing client data and re-classify those who fall into the US indicia criteria.
  10. Financial firms that have tax-efficient vehicles for US clients that are still FATCA compliant stand to gain a competitive edge.