FATCA Countries & Compliance

FATCA, otherwise known as the Foreign Account Tax Compliance Act, was put into place in 2010. After settling in for four years, the law is now in full effect – and that means that individuals and financial institutions need to comply with FATCA. FATCA includes the requirement that any US citizen, even those living outside of the United States, reports to the IRS when they have more than $50,000 in foreign bank accounts or holdings. In addition, foreign financial institutions must report details of US bank account holders to the IRS, including detail about their transactions. Find out more about FATCA compliance, and which countries are involved in the law, in the article below.

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What is FATCA Compliance?

While FATCA is a US tax law, its implications are far-reaching. The law was put into place to cut the risk of Americans hiding taxable income in foreign accounts, and as such the law affects both US citizens and financial institutions in other countries. FATCA compliance is for both the individual and the institution. The individual must fill out IRS Form 8938 and this should be attached to the annual income tax filing. The form gives details of any assets which total more than $50,000, which are held in a foreign financial institution. The threshold is higher for certain individuals. Tax is then calculated on these assets. The financial institution must also comply with FATCA law. The idea is for the IRS to cross-reference the reports from foreign institutions with the tax returns from US citizens in order to work out how much tax the US taxpayer owes. FATCA information is intended to flow freely from country to country.

FATCA and Financial Institutions

If an institution is non-compliant it risks large fines and also being frozen out of American financial markets. If financial companies do not reveal detail on the US account holders on their books, they risk being cut off from access to the financial markets in the United States – markets which are critical to financial success across the globe. This means that most major institutions are complying with the FATCA demands. Over 80 countries have agreed to the FATCA law.

Which Countries Are In?

The US Treasury has secured cooperation with almost 80 countries over compliance with FATCA. These countries include: Australia, Belgium, Bermuda, Canada, Cayman Islands, Chile, Costa Rica, Denmark, Finland, France, Germany, Gibraltar, Guernsey, Hungary, Ireland, Isle of Man, Italy, Jamaica, Japan, Jersey, Malta, Mauritius, Mexico, Netherlands, Norway, Slovenia, South Africa, Spain, Switzerland, and the United Kingdom.

As of November 2014, another 25 countries around the globe have agreed to the FATCA law in principle but the agreements are still waiting on final signing: Austria, Azerbaijan, Bahamas, Brazil, British Virgin Islands, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hong Kong, India, Israel, Kosovo, Latvia, Liechtenstein, Lithuania, New Zealand, Poland, Portugal, Qatar, Romania, Singapore, Slovak Republic, and South Korea.

Countries in Negotiation or Development of Treaty

Negotiations are underway to put a FATCA treaty in place with the following countries: Argentina Bahrain, Barbados, Curacao, Ghana, Gibraltar, Honduras, Lebanon, Luxembourg, Malaysia, Russia, Seychelles, St Maarten, Taiwan, Thailand, Trinidad and Tobago, and the United Arab Emirates. Russia is currently on a different schedule due to the political crisis in the Ukraine.

What Are the Penalties?

The penalties for non-compliance on the side of the institution or the individual are tough. If an individual hasn’t reported their foreign assets within a defined frame of time, they are risking a fine. The penalty fine for individuals who should report foreign assets but do not is $10,000. This is the failure to fine penalty, and it can be extended if the individual fails to file even when in receipt of a notification from the IRS. Individuals can also be sent to prison. Financial institutions also have a high price to pay. Credit Suisse, for example, was served a $2.6 billion fine when it failed to comply with the FATCA law – no matter how large, a financial company cannot hide from the reporting requirements of FATCA.

It is clear when looking at the list of countries compliant with FATCA that this law is on a global scale – and therefore it has the potential to affect millions of people. If you are unsure whether you need to file with FATCA, consult a professional for advice.

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