F-Day is here – the US Foreign Account Tax Compliance Act (FATCA) has come into force and taxpayers the world over need to be aware of the implications.
FATCA is not just about US taxpayers but expats and taxpayers in other countries with bank accounts or investments in the US.
To help you decide how FATCA affects you, here are some answers to frequently asked questions about the controversial law:
What is FATCA?
FATCA is a US inspired tax information swapping agreement between 112 countries. Basically, many of the inter-governmental agreements allow the US Internal Revenue Service (IRS) to collect data from foreign tax authorities about bank accounts and investments controlled by US taxpayers.
However, hidden in the back of many of these treaties is a reciprocal agreement for the IRS to collect tax data about foreign nationals within the FATCA web for transmitting back to their tax authorities.
What information is collected under FATCA?
Names, addresses, bank account balances and lists of investments and tax residence
Is this every account or just some of them?
If a foreign financial institution or US financial institution holds multiple accounts with a total balance of more than $50,000, then the details come under FATCA rules
What happens if I have not told the IRS about my offshore money?
If you should have reported this money on a tax return but have overlooked the declaration, then speak to the IRS straight away and ask if you can come clean under a disclosure scheme for reduced penalties.
If you wait for the IRS to ask you, the penalties will be stricter.
My money is in a country outside FATCA
It doesn’t matter. If the bank or financial institution holding your cash or investments has US dollar dealings, then the institution will have a duty to send your financial information to the IRS.
If the institution does not do this, they face a 30% withholding tax on all their cash passing through banks in the USA.
What is an FFI?
FFI stands for a ‘foreign financial institution’ and covers banks, investment managers, trusts and other organisations
I’m not American – does FATCA affect me?
If you have a bank account or investments in the US and the country where you pay tax has an inter-government treaty with the US, then the IRS will collect your financial information and send it to your local tax authority