If you are from the US then you’ve probably heard of the Foreign Account Tax Compliance Act (FATCA), but are you aware of how it could affect you? The legislation came into full effect on the 1st of July 2014 and has many implications, particularly for US expatriates.
FATCA is a U.S. tax avoidance measure that requires foreign (non- U.S.) financial institutions (FFIs) to identify, report on and, in some circumstances, withhold on payments to account holders.
The premise behind FATCA is intended to increase transparency for the IRS with respect to U.S. persons that may be investing and earning income through non-U.S. institutions. While the primary goal of FATCA is to gain information about U.S. persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met. FFI’s are now required to report the following:
1) The name, address and U.S. tax identification number (TIN) of each account holder that is a specified U.S. person;
2) In the case of any account holder that is a U.S. entity with one or more U.S. owners, the name, address and TIN of each substantial U.S. owner of such entity;
3) The account number;
4) The year-end account balance or value; and
5) Gross receipts and gross withdrawals or payments from the account.
Many Americans residing overseas are reporting banking lock-out as some foreign financial institutions have simply chosen to eliminate their US client basis in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.
Some experts even believe that there are risks that this law will make it less desirable for foreigners to do business with Americans. There may even be a reduced desire to hold dollar-based assets. The possibility that the new law will make it more difficult to open foreign accounts of any type could impact some nearly 7 million Americans who live and work abroad.
To learn more about FATCA and how it might impact you, you should seek independent financial advice or speak to your tax advisor for more information. You are also advised to visit the IRS website - www.irs.gov