What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is legislation enacted in March 2010
by the US Government, implemented on 1st January 2013.
The purpose of FATCA is to stop American citizens from evading US tax by using foreign
subsidiaries to invest in the US through foreign accounts. FATCA imposes a 30% withholding
tax on foreign entities that refuse to disclose the identities of their US clients.
Payments subject to a 30% withholding tax include payments sources from the US such
as interest, dividends, rents, salaries, premiums, annuities and any other gross
proceeds which could produce interest or dividends from sources within the US.
Foreign banks and other financial institutions, including foreign insurance companies,
must therefore provide the evidence to verify US status within a time limit. Failure
to provide evidence within the agreed timescale, or if the individual fails to disclose
assets in full in their annual tax returns to the IRS, the foreign financial institution
must treat their account as a recalcitrant account and must withhold all US source
income and payments from them and will also be subject to 30% withholding tax.
What happens if a FFI does not comply with FATCA?
Any foreign financial institution that does not enter with the IRS will be listed
as Non Participating FFI and any US-source payments to these institutions will also
be subject to 30% withholding tax that is deducted directly from the IRS.
What does an FFI have to do?
An FFI may enter into an agreement with the US revenue authorities requiring it
to report all US citizens' accounts. They must be able to capture the status of
an individual, have systems to withhold tax and to report. Certain countries like
the US, Italy, Spain and France are currently negotiating an agreement with the
US government to facilitate the exchange of information.
All FFIs must start registering and sign up to FATCA by June 30, 2013. The withholding
tax will be phased in over a number of years commencing with US source income payments
in January 2014.
What does a client have to do?
FATCA requires certain US taxpayers holding foreign financial assets with an aggregate
value exceeding $50,000 to report these assets on new IRS form 8938 and this must
be attached to the tax payer's annual tax return.
For most tax payers this will be for tax year 2011, which will be filed in 2012.
Failure to report a form 8938 will result in a penalty of $10,000 and $50,000 for
continued failure, plus up to 40% penalty for non reporting of foreign assets.
Does FATCA only apply to banks?
No, the rules also apply to foreign financial institutions as well as non-financial
foreign entities, therefore foreign insurance companies as well.
What should US citizens living abroad do?
The deVere Group, the world's largest international financial consultancy that specialises
in expatriates, assured its clients that as FATCA comes into law in 2013, it has
made sure that its experts create specialised products for US clients. deVere is
now offering its American clients alternative ways to invest their money that could
potentially give them attractive tax advantages, whilst remaining in-line with US
laws and regulations.
Nigel Green, CEO of the deVere Group, stated that the company has invested heavily
in recent months to create a global network of products to comply with the implementation
of FATCA. "We believe that banks not accepting US citizens can act as an investment
deterrent for our American clients and have thus made big efforts to be fully equipped
to advise them on legal tax efficient solutions that increase their options and
allows them to enjoy the benefits of international investments. As an international
IFA with offices in most expat countries and the States, deVere is uniquely positioned
to offer this advice to US expatriates".
The deVere Group is holding various specialised informative seminars on FATCA. Book your place
online or speak
to a deVere Financial Adviser today