What is FATCA?

The IT world is full of confusing acronyms and FATCA is high on that list. Our Risk, Regulation and Compliance Analysts received extensive training to help clients ensure money laundering and financial crimes are minimised and regulations such as FACTA and Dodd-Frank are followed. But what actually is FACTA?

FATCA stands for Foreign Account Tax Compliance Act and is a piece of United States legislation developed to detect and deter tax evasion by US taxpayers through non-US financial institutions and offshore investments.  FATCA was signed into US law in March 2010 as part of the US Hiring Incentives to Restore Employment Act.

This federal law means that all United States persons, including those living outside the US, must file their non-US financial accounts with the Financial Crimes Enforcement Network annually. This also stands for foreign entities in which US taxpayers hold a substantial ownership interest.

FATCA aims to increases transparency through strong information reporting. All foreign financial institutions must report to the Internal Revenue Service on the financial accounts of all US taxpayers with over $50,000.

Non-compliant institutions risk being frozen out of the US market. This risk has held to strong levels of compliance since inception in 2010. Unless entered into an agreement to provide information to the IRS, FATCA can impose a 30 per cent withholding tax on payments of US source income made to non-US financial institutions.

A large number of nations across the world have signed up for inter-governmental agreements to help them comply with FATCA. These agreements build FATCA regulations into local laws forcing local financial institutions to provide the necessary information to the IRS.

FACTA may be a US regulation, but its impact reaches the entire world. At FDM, we ensure our RRC Analysts are on top of the latest compliance rules around the globe. As new administrations come in and out of offices, these rules will constantly be changing. It is up to us, the businesses of the world, to ensure we’re always up to date.

Updated 3 February, 2017