The U.S. Congress enacted FACTA in 2010 to prevent U.S. taxpayers from using foreign accounts to get around US taxes. The United States Department of Treasury (Treasury) and the US Internal Revenue Service (IRS) drafted FACTA. The legislation became effective on June 30, 2014. The legislation requires Foreign Financial Institutions (FFIs) to report financial accounts held by US taxpayers to the IRS.

An FFI is a foreign entity holding deposits and other financial assets. Foreign entities in which US taxpayers hold a substantial ownership interest must also file. FATCA, passed under the HIRE Act, equires US persons to report their foreign financial accounts and foreign assets depending on the value.

Since FATCA requires banks and other financial organizations to report annually information on financial accounts in which US persons have direct or indirect interest, FFis must first determine which new customers are reportable under the legislation.

FATCA precludes US Persons from accessing Banks and other Financial Organizations to avoid US taxes on their income and assets. Countries globally signed Intergovernmental Agreements (IGAs) with the US. These IGAs result in FATCA legislation becoming a part of local legal fabrics. FFIs can either directly register with the IRS or report to their local regulator per the Intergovernmental Agreements (IGA).

In order to comply with FATCA, US Persons fill out Form 8938. US citizens, US individual residents, and certain nonresident individuals with certain foreign financial accounts or other offshore assets, like specified foreign financial assets, must report said assets.

A US citizen can be born in the US, but resident in a different country, while still holding a US passport. They can also be residing in the US, such as US green card holders. Some individuals who spend a significant number of days in the US each year might also be considered a US Person under tax codes.

Certain taxpayers, whose foreign financial assets are below a certain threshold, are not required to file Form 8938. For individuals living outside of the US, the tax threshold at present is higher. Thresholds vary for married and single taxpayers, and there are penalties for failing to file accurately.

FATCA applies to personal and business customers with accounts, policies or agreements with foreign financial institutions. Not only US companies are affected. The legislation could have implications for certain foreign business customers. FFIs might ask you to provide additional information and documentation, like a US tax form from the IRS.

FATCA does not override previously existing US tax regimes. Different FFIs might ask for different information as part of their FATCA compliance process. Banks and Financial Organizations use different methods to collect information from their customers to comply with global banking regulations. FFIs cannot advise you on your tax status or classification. You will be required at least once a year to provide information for FATCA.

A customer’s FATCA classification will determine the information an FFI will report to the IRS or the local tax authority. The information will generally include Name, Address, US Taxpayer Identification Number, and financial information, such as Account number, Account balance/value). Documents commonly requested include US tax form, like withholding certificates, W forms or self-declarations of FATCA status.

FFIs should inform their clients that information and documentation they need to ensure FATCA compliance. An FFI will send you the relevant forms or direct you to a web page from which to download them, as well as a due date.

If a customer fails to provide the required documentation or when doing business with non-compliant entities, the financial institution may be subject to a 30% US withholding tax on certain types of US income paid to such customers.

Foreign Financial institutions may also be required to report information about customers who do not provide the required documentation to their financial institution.

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Please note that EQIBank is unable to offer tax advice. For tax related questions please contact your professional tax advisor or refer to the IRS website. You can learn more by visiting the IRS website or contacting a professional tax advisor.

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