What is the FATCA?
Are you an American individual or business entity that had multiple financial dealings in different parts of the world? Confused about how to report your financial accounts if you had financial accounts outside the US? The Foreign Account Tax Compliance Act (FATCA) is the answer to these queries.
Understanding the FATCA
The FATCA is a United States federal law. It requires and sets out rules for people of the US, individuals who live outside the country included, to report their financial accounts held outside of the United States. Its reach also includes the foreign financial institutions, of which it requires reporting about their US clients to the Internal Revenue Service (IRS).
Rationale for enactment of this law
The Foreign Account Tax Compliance Act is part of the 2010 Hiring Incentives to Restore Employment (HIRE) Act. The logic behind the enactment of this legislation is to help the federal government identify those individuals and companies suspected of having overseas assets and concealing their disclosure. The Congress Foreign Account Tax Compliance Act with the purpose of making it difficult for U.S. taxpayers to conceal assets held in offshore accounts, and what are called shell corporations. The obvious aim of the Foreign Account Tax Compliance Act is to bring about an increase in federal tax revenues.
Introduced in the House and Senate as Foreign Account Tax Compliance Act of 2009, it was signed into law by President Barack Obama on March 18, 2010. It insists on reporting of the following:
- By U.S. taxpayers about select types of foreign financial accounts and offshore assets;
- By foreign financial institutions about financial accounts held by US taxpayers or foreign entities, in which US taxpayers hold a considerable interest of ownership;
- Needless to say, it imposes heavy penalties on those who withhold reporting of financial assets.
The Foreign Account Tax Compliance Act will take full effect on July 1, 2014.