Foreign Account Tax Compliance Act (FATCA)
What is FATCA?
FATCA first became a law in March 2010. The main aim of the Foreign Account Tax Compliance Act (FATCA) was to control non-compliance of all American taxpayers who use foreign accounts. The government of U.S passed the law, which entitled every American to paying tax regardless of where they live world wide as long as they earn an income. Initially, FATCA had been just a provision, but soon became a law in the year 2010 March.
Form 8938 and its relation to FATCA
The main objective of the law is to fight tax evasion by US citizens who own financial assets outside the American boundaries. Hence, the law requires any U.S citizen to fill the Form 8938 to report all relevant information about particular offshore assets and overseas financial accounts. Upon filling the Form 8938 taxpayers then attach it to their individual income tax returns. This is only applicable if only the asset value is more than the suitable (appropriate) threshold.
FATCA rules, even foreign financial institutions
Foreign financial institutions too are under the FATCA law. The law requires FFI (foreign financial institutions) to submit any information about financial accounts owned by an American taxpayer to the IRS (Internal Revenue Service). FATCA-IRS works directly with the FFIs to receive the reports. What is more, the FFIs should also report if any taxpayer holds any substantial ownership in any foreign entity.
Latest news on FATCA law required investment funds, foreign banks, and insurance companies to report to the FATCA-IRS of any account worth more than $50,000 belonging to U.S persons.
Who is a U.S. Taxpayer? Who does the FATCA, fatca IRS, FATCA NEWS apply to
The question about who is a U.S. person who should be under the FATCA law is still unclear. The U.S. tax law considers several factors before classifying one as a U.S person:
· Any individual lawfully residing in the U.S
· Any citizen of United States
· Any lawful green card holder
· In some cases, the tax body may term you as a citizen if you spent longer periods in the U.S.
Further information on FATCA, fatca IRS, FATCA NEWS
Recently, foreign financial institutions (FFI) signed an agreement with the U.S. IRS. In this agreement, any FFI reports their account holders and has to withhold a 30% on particular payments made to foreign payees in case the payees fail to comply with the Foreign Accounts Tax Compliance Act.
Latest news on FATCA revealed some newly made Foreign Account Tax Compliance Act (FATCA) regulations which exempt numerous FFIs from the obligation of registering and reporting and such include:
· Specific retirement entities
· Some small local financial institutions
· Some non-profit organizations
· Most of state owned entities
There are different categories of FFIs and you may feel confused, but recently FATCA revealed that the following are some of FFIs under the tax law:
· Specific kinds of insurance companies
· Some investment entities for instance, hedge funds
· Custodial institutions, for instance, mutual funds
· Common depository institutions, for instance, banks
It is now clear to all FFIs that any institution that fails to report will risk a 30% withholding tax on the specific US source payments to them.
IRS issues a GIIN (Global Intermediary Identification Number) to any FFI that registers itself in the FATCA’s website. It is also possible for an FFI to register itself with the IRS through paper although the method is not recommendable.
It is the responsibility of the US treasury to inform US persons about FATCA, fatca IRS, FATCA NEWS and make sure details get to those in abroad.
IRS takes the initiative of publishing all endorsed FFIs together with their GIINs monthly. You can access the FFI list online as the IRS avails the download and the search tools and you can search through country, name, or GIIN.
Latest FATCA news reported that through the online registration, an FFI is in a position to access its account and even modify and add new registration information.
Jan 1, 2014 was the deadline for registration and any FI wishing to register was to do so before then. This year 2014, June is when IRS announced it would post the Foreign Financial Institution list and would be updating the list monthly thereafter.
Controversies underlying the Foreign Account Tax Compliance Act
Some features of the Foreign Account Tax Compliance Act have been the origin of some crucial controversies in the financial sector and to the public and press.
Recent reports have linked the controversy to some five most important subjects, resulting to more talks about FATCA, fatca IRS, FATCA NEWS:
1. The issue of cost: estimates have proved that the cost of implementing the Foreign Account Tax Compliance Act may be higher than the revenues that the Act brings forth. According to ACFCS (Association of Certified Financial Crime Specialists) approximates that the Foreign Account Tax Compliance Act will raise $800 million annually. Then, the expenses of implementing the Foreign Account Tax Compliance Act range up to $10 billion. This led to a lot of questions.
2. Foreign relations: the exercise of following up U.S persons in foreign countries may bring about implications. Experts have said it is a discordant act to make foreign financial institutions (FFIs) gather information on U.S persons and deliver the report to the IRS at their own expense. This have made Americans living in foreign countries have a difficult time since the local banks refuse to open bank accounts for them.
3. US citizens are continuously renouncing their citizenship: the Foreign Account Tax Compliance Act has led to many US citizens who live in foreign countries renounce their citizenship especially in 2008-2011. Most of those renouncing stated that the Foreign Account Tax Compliance Act was their cause of renunciation. It is impossible to work abroad and lack a bank account since most employers want to deposit salaries into the employees’ bank accounts.
4. IRS lacks the threshold: according to New York Times, the IRS may not be ready to handle the millions of files it ought to receive annually.
5. It is unfair for American citizens living abroad: a report issued by the CBC (Canadian Broadcasting Corporation) showed that most Americans living abroad would suffer massive fines from the Foreign Account Tax Compliance Act.
It is our America, inform yourself about the Foreign Account Tax Compliance Act with the above information on FATCA, fatca IRS, FATCA NEWS.