What Is the Foreign Account Taxation Compliance (FATCA)?

FATCA stands for the Foreign Account Tax Compliance Act. FATCA is an information-sharing agreement, created via a 2010 U.S. federal law, between the United States and more than 100 foreign countries. The goal of FATCA is to identify non-U.S. financial accounts opened or controlled by U.S. citizens or businesses for the purpose of avoiding U.S. taxes—for instance, in tax havens, tax-free countries, or countries with lower corporate tax rates to avoid taxation.

FATCA does not require reporting related to non-U.S. citizens. So, if you are not a U.S. Citizen (or company) and have an account in one or more U.S. financial institutions, FATCA does NOT apply. However, foreign companies controlled by U.S. citizens are subject to FATCA reporting.

FATCA Objective

The objective of FATCA is to identify U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts -- either directly or indirectly through certain foreign entities such as corporations or trusts.

Who or What Is a U.S. Person for U.S. Tax Purposes?

• A citizen of the U.S., including an individual who was born in the U.S. but resides in another country, who has not renounced U.S. citizenship
  
• A lawful resident of the U.S., including a U.S. green card holder
  
• A person residing in the U.S.
  
• Certain persons who spend a significant number of days in the U.S. each year. (For example, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Similar relief is provided under many other treaties with the U.S.)
  
• U.S. corporations, U.S. estates, and U.S. trusts

FATCA Fundamentals and International Tax Compliance

For foreign (non-U.S.) financial institutions (FFIs) in countries that have not entered into an intergovernmental agreement with the U.S., FATCA requires FFIs to either:

• Enter into agreements with the United States' Internal Revenue Service (IRS) and report information about financial accounts held by U.S. taxpayers -- or held by foreign entities in which U.S. taxpayers hold an ownership interest -- directly to the IRS, or
  
• Face punitive U.S. withholding tax on U.S.-source payments
  

To address privacy and regulatory concerns related to FATCA, many countries negotiated intergovernmental agreements (IGAs) with the U.S. These IGA "partner countries" entered into one of two standard model agreements, and implemented laws to require financial institutions to collect and report information required by FATCA.

FFIs comply with FATCA in one of three ways:

1. In countries with Model 1 IGA, FFIs comply under local legislation and report to their local tax authority; in turn, the local tax authority exchanges information with the IRS
   
2. In countries with a Model 2 IGA, FFIs comply with local legislation to enter into agreements with, and report directly to, the IRS
   
3. In countries without an IGA, FFIs enter into agreements with, and report directly to the IRS. (A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.)
   

U.S. financial institutions are automatically required to comply with FATCA.

Note: the term U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. controlling persons -- regardless of the currency of the account itself. FATCA applies to all types of financial accounts, including insurance, investments, trust, assignment, escrow, and other business accounts.

EPTC complies with FATCA regulations in all jurisdictions in which it operates.

What Is the Difference Between a FATCA Model 1 Country and a Model 2 Country?

In general, the countries that are included in FATCA have entered into either a Model 1 or Model 2 agreement. In a Model 1 country, financial data about United States citizens is collected by the partner country's various financial institutions and sent to that country's governmental tax authority. That authority then passes the information on to the IRS, which uses it to ensure the person is paying the amount of tax they legally owe. A total of 94 countries fall under the Model 1 agreement.

In a Model 2 country, the partner government's tax authority is removed from the transfer chain and information is passed directly from the country's financial institutions to the IRS. 14 countries have entered into a Model 2 agreement. Both models also include variants in which the US would reciprocate by providing similar information about any of the partner country's citizens residing in the U.S.

What Countries Are FATCA Model 1 Countries?

Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.

What Countries Are FATCA Model 2 Countries?

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Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.

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