What You Need to Know About FATCA IRS Registrations

FATCA is the legislation gradually being implemented by different countries, with the initiative from the American government, requiring US citizens to declare offshore assets. US citizens residing within the country’s jurisdiction, as well as permanent US citizens abroad, must comply with reporting financial accounts and international resources. Failure to cooperate would subject individuals to monetary penalties, and even imprisonment. To implement this provision, FATCA IRS registrations are required from financial institutions to disclose information regarding US persons holding international assets.

What is FATCA?

The Foreign Account Tax Compliance Act is included within Hiring Incentives to Restore Employment Act (HIRE) law of the United States. It requires all American citizens all over the world to declare not only local assets, but as well as international. FATCA IRS registrations are provisioned to report foreign financial assets and to penalized tax evasion cases by US citizens.

This legislation is strengthened with Inter-Governmental Agreements (IGA), which means all foreign financial institutions must enter to an agreement with the IRS. Although the description financial institution is vaguely defined, any kind of foreign financial groups, including banks, firms, insurance companies, mutual fund companies, etc. must comply. Third party reporting requires these groups to provide the US government with information proving that particular US persons have indeed international assets. Failure to comply subjects these institutions with 30% withholding tax, excluding refunds.

FATCA Information for Individuals

US individual citizens, living in US territories and abroad, must file Form 8938 to Internal Revenue Service. This must be done on the same tax year in which a citizen must file income tax returns. It must be attached to Form 1040 for US individuals.

For international assets below $50,000, an individual is not required to declare. However, for financial accounts and assets exceeding the value of $75,000, any individual is obliged to surrendering information to IRS. Reporting requirements under FATCA are different and must not be confused with other IRS tax income reports. All accounts, associated with offshore assets, must be provided for and declared. Different threshold applies to married couples and institutions.

How to Register for FATCA for Individuals

Financial institutions are required under FATCA to provide and prove information of any US person with offshore assets. Registration is mandatory for all financial institutions (FI) that agree to comply, preventing the 30% withholding tax. To identify undeclared assets from US citizens abroad FATCA IRS registrations allow financial institutions to appoint a delegate in confirming assets.

The online registration system allows FIs to create an account and serve as FATCA compliant. These foreign financial institutions are allowed to manage their account regarding submitted information and branches details. Online registration gives U.S. citizens abroad FATCA registrations paper-free convenience.

Upon registration, financial institutions must identify themselves under these categories:

Single FI – this refers to registrants representing themselves; they are Participating Foreign Financial Institution (PFFI) or also known as Registered Deemed Compliant Foreign Financial Institution (RDCFFI). A USFI or United States Financial Institution, a resident of the US, falls under this category as well.

Lead FI – financial groups that represent and process their members for FATCA. They initiate registration for PFFI, RDCFFI, and Limited FFI. One Lead FI does not necessarily have to carry all of its members; an affiliated group may create more than one Lead FI to handle all information in relation to its members.

Member FI – this registers FFI member of an affiliated group that does not act as Lead FI. A Member FI allows members of Expanded Affiliated Group (EAG) to register as a PFFI, RDCFFI, or Limited FI. Note that a Member FI must be provided with FATCA ID from its Lead FI, only to identify them during registration.

Sponsoring Entity – this category recognizes an entity that claims responsibility to report for multiple controlled foreign institutions.

Upon creation of account, four-part registration form must be filled out. Only applicable parts for the designated category are required.

Part 1 – All basic information for all FIs. All categories must be provided all information requested.

Part 2 – This section must be provided within the FATCA website. Lead FIs are required to complete requested details.

Part 3 – Only an FI or foreign branch of a USFI must fill this section.

Part 4 – This certifies all information provided in previous section of the registration. Secures accuracy and truthfulness of information submitted by all FIs.

The final step of the process is submission and approval. All filing and submission of forms must be done after January 1, 2014. Appointed delegates filing the online registration form should await confirmation approving all information given and also to receive respective GIIN.

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