What is FATCA compliance, and what are the requirements for individuals and entities under this law?

FATCA Compliance (Foreign Account Tax Compliance Act)

The Foreign Account Tax Compliance Act (FATCA) is a U.S. law designed to prevent tax evasion by U.S. taxpayers who hold financial accounts outside the United States. FATCA requires both U.S. persons and certain foreign financial institutions (FFIs) to report information about foreign financial assets and accounts to the IRS.

For Individuals:

• A U.S. person (citizen or resident) must report foreign financial accounts and assets if their total value exceeds certain thresholds.

• Reporting is done through Form 8938 (Statement of Specified Foreign Financial Assets) with their annual tax return.

• Failure to comply can result in penalties, including fines.

For Entities (Businesses, Corporations, Partnerships, Trusts):

• Entities that are considered foreign financial institutions (FFIs) may need to register with the IRS and report accounts held by U.S. persons.

• Non-financial foreign entities (NFFEs) must provide information about U.S. owners or controlling persons to withholding agents or financial institutions.

• FATCA compliance ensures transparency and reduces the risk of withholding taxes on certain U.S.-source payments.

Key Steps for Compliance:

1. Identify U.S. Persons: Determine if any owners, beneficiaries, or account holders are U.S. persons.

2. Report Required Information: Submit reports to the IRS or the applicable financial institution, depending on your status.

3. Maintain Records: Keep documentation and reporting records for at least 6 years in case of audits or inquiries.