The Foreign Account Tax Compliance Act (“Fatca”) is a tax law implemented by the United States in order to combat money laundering and terrorist financing. It requires foreign financial institutions (“FFIs”) that have accounts with U.S. persons to report any information that would allow the IRS to determine whether those accounts are “withholdable under Section 6662 of the Internal Revenue Code of 1986.” The term “U.S. person” includes an individual, corporation, partnership, trust, or other entity organized under the laws of the United States or any State thereof, or any political subdivision thereof. FFIs must report this information even if no tax is due on the account or if only a small amount of taxes are due.
To comply with FATCA Services, FFIs must enter into agreements with the IRS known as “Fatca Treaties.”
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These treaties require FFIs to identify their U.S.-account holders and to disclose certain account information such as name, identification number, address, account balance and transaction history. The treaty also requires FFIs to withhold 30 percent of all payments made to an U.S.-account holder unless the FFI can demonstrate that withholding is not practicable or would be excessively burdensome for such holder.
If you are a U.S.-based business owner or taxpayer and you are concerned that your FATCA obligations may apply to you, it is important to contact your tax advisor.