What is the FACTA Filing Requirement and How does it Apply to You?

The FATCA filing requirement is the requirement of Foreign Financial Institutions (FFIs) to report the financial accounts of US citizens and tax residents.

Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions (FFIs) are required to report certain information about financial accounts held by U.S. taxpayers, or foreign entities in which U.S. taxpayers hold a substantial ownership interest, to the Internal Revenue Service (IRS). This reporting requirement applies to a wide range of financial accounts, including deposit accounts, brokerage accounts, and certain types of investment accounts.

What is the purpose of the FATCA filing requirement?

The Foreign Account Tax Compliance Act (FATCA) was enacted by the U.S. Congress in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. The original purpose of FATCA was to target tax evasion by U.S. taxpayers with offshore accounts. Prior to the passage of FATCA, it was estimated that billions of dollars in taxes were being lost each year due to U.S. taxpayers failing to report income from foreign financial accounts.

FATCA was intended to make it more difficult for U.S. taxpayers to hide assets in offshore accounts by requiring foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers to the Internal Revenue Service (IRS). The law also imposed penalties on FFIs that fail to comply with the reporting requirements.

Can US Citizens Still Open Offshore Bank Accounts after FATCA?

Yes, U.S. citizens are still able to open offshore bank accounts after the implementation of the Foreign Account Tax Compliance Act (FATCA). However, it is important to note that such accounts are subject to the reporting requirements of FATCA. This means that if a U.S. citizen opens an offshore bank account, the foreign financial institution (FFI) where the account is held will be required to report certain information about the account to the Internal Revenue Service (IRS). The FFI will be required to report the name, address, and taxpayer identification number of the account holder, as well as the account number, balance, and gross income for the account.

It is also worth noting that U.S. taxpayers with offshore accounts may be subject to tax reporting requirements in addition to the reporting requirements of FATCA. For example, U.S. taxpayers with foreign financial assets with a total value exceeding certain thresholds may be required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Department of the Treasury. Additionally, U.S. taxpayers with foreign assets that exceed certain thresholds may be required to file Form 8938, Statement of Specified Foreign Financial Assets, with their tax return.

What is the FATCA filing requirement for overseas banks?

Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions (FFIs) are required to report certain information about financial accounts held by U.S. taxpayers, or foreign entities in which U.S. taxpayers hold a substantial ownership interest, to the Internal Revenue Service (IRS). The following information must be reported to the IRS:

  • The name, address, and taxpayer identification number of each account holder who is a U.S. person
  • The account number
  • The account balance or value at the end of the calendar year
  • The gross amount of interest, dividends, and other income paid or credited to the account during the calendar year

FFIs are generally required to file this information with the IRS on an annual basis. The specific filing requirements may vary depending on the type of FFI and the size of the financial accounts being reported.

What is the FATCA filing requirement for non-US Citizens?

FATCA applies to US citizens and tax residents. Therefore, anybody who’s a US taxpayer and files a tax return is subject to the FATCA filing requirement.

Can I avoid FATCA reporting by using an offshore company?

If an offshore company does not have US directors and is not controlled by US connected persons it’s not subject to FATCA. This can be a complex are, but it’s possible to put together a legal structure with a trust or foundation that would not be subject to FATCA reporting requirements.

Form 8938 and FBAR

Form 8938, Statement of Specified Foreign Financial Assets, is a tax form that must be filed by certain U.S. taxpayers with foreign financial assets that exceed certain thresholds. The form is used to report information about specified foreign financial assets, which include foreign financial accounts, foreign stocks and securities, and interests in foreign entities, among other things.

Form 8938 must be filed with the taxpayer’s annual tax return if the total value of the taxpayer’s specified foreign financial assets exceeds certain thresholds. The threshold amounts vary depending on the taxpayer’s filing status and whether the taxpayer resides in the United States or abroad. For example, for a taxpayer who is single and resides in the United States, the threshold for Form 8938 is $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

Form 8938 is in addition to the Report of Foreign Bank and Financial Accounts (FBAR), which is a separate form that must be filed by U.S. taxpayers with an interest in or signature authority over foreign financial accounts if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. Form 8938 and FBAR have different filing requirements and thresholds, and taxpayers may be required to file both forms if they have foreign financial assets that meet the relevant thresholds.

How Can I Avoid FATCA?

There are exemptions from FATCA reporting that may apply to certain types of financial accounts or entities. For example, there are exemptions for certain types of accounts that are considered low risk for tax evasion. The exemptions include accounts with a balance of $50,000 or less, or accounts held by certain types of institutions, such as governments, international organizations, and charitable organizations. There are also exemptions for certain types of financial products, such as insurance contracts and annuities. And for certain types of entities, such as qualified intermediaries, withholding foreign partnerships, and withholding foreign trusts.

It’s important to note that these exemptions are subject to specific requirements and conditions, and it is the responsibility of the financial institution to determine whether an exemption applies in a particular case. Financial institutions that claim an exemption from FATCA reporting may be required to maintain certain records and documentation in order to support their claim.

Fatca IGAs

FATCA Intergovernmental Agreements (IGAs) are agreements between the United States and other countries that provide for the exchange of information about financial accounts held by U.S. taxpayers. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions (FFIs) to report certain information about financial accounts held by U.S. taxpayers, or foreign entities in which U.S. taxpayers hold a substantial ownership interest, to the Internal Revenue Service (IRS). However, FFIs may be subject to conflicting reporting requirements under the laws of their own countries.

To address this issue, the United States has entered into IGAs with other countries, which provide a framework for the exchange of information between the two countries in order to comply with FATCA. There are two types of IGAs: Model 1 IGAs and Model 2 IGAs. Model 1 IGAs provide for the exchange of information directly between the IRS and the FFIs of the other country, while Model 2 IGAs provide for the exchange of information between the other country’s tax authorities and the IRS.

As of 2021, the United States has entered into IGAs with more than 100 countries. The specific terms of each IGA may vary, but they generally provide a framework for the exchange of information about financial accounts held by U.S. taxpayers in order to assist in the enforcement of U.S. tax laws. You can see the latest list of IGAs here.