Foreign Account Tax Compliance

The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law to enforce the requirement for United States persons including those living outside the U.S. to file yearly reports on their non-U.S. financial accounts to the Financial Crimes Enforcement Network (FINCEN). It requires all non-U.S. (foreign) financial institutions (FFIs) to search their records for indicia indicating U.S. person-status and to report the assets and identities of such persons to the U.S. Department of the Treasury.  The FATCA was the revenue-raising portion of the 2010 domestic jobs stimulus bill, the Hiring Incentives to Restore Employment (HIRE) Act, and was enacted as Subtitle A (sections 501 through 541) of Title V of that law.

FATCA Provisions

FATCA has these main provisions:

• The law requires non-U.S. (foreign) financial institutions, such as banks, to enter into an agreement with the IRS to search through their customer databases to identify those customers suspected of being U.S. persons, and to disclose the account holders' names, TINs, addresses, and the transactions of most types of accounts. Some types of accounts, notably retirement savings and other tax-favored products, may be excluded from reporting on a country by country basis. U.S. payors making payments to non-compliant foreign financial institutions are required to "deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment".  Foreign financial institutions which are themselves the beneficial owners of such payments are not permitted a credit or refund on withheld taxes, absent a treaty override.  Identification is done by detecting "FATCA indicia". Alternatively, a bank official who has previously gained knowledge of a person's (U.S. person) status by other means, is also required to identify that person for FATCA purposes.  After identification, the FFI has the responsibility to further question the individual before allowing the individual to have the identification of suspicion removed.
• To facilitate the implementation of the foregoing statutory requirement, the IRS promulgated Form W-8BEN in February 2014. The IRS requires all FFIs to require all foreign account holders to certify their foreign status on Form W-8BEN unless an intergovernmental agreement is in place to authorize an alternative method of certification.  In other words, all account holders of FFIs are expected to comply with FATCA reporting requirements.
• U.S. persons owning or having signatory authority of these foreign accounts or other specified financial assets must report them on a new IRS Form 8938, Statement of Specified Foreign Financial Assets, which is filed with the person's U.S. tax returns if the accounts are generally worth more than US$50,000; a higher reporting threshold applies to U.S. persons who are overseas residents and joint filers.  Account holders would be subject to a 40% penalty on understatements of income in an undisclosed foreign financial asset. Understatements of greater than 25% of gross income are subject to an extended statute of limitations period of 6 years.  It also requires taxpayers to report financial assets that are not held in a custodial account, i.e. physical stock or bond certificates.
• It changed a method where foreign investors had not been due U.S. dividends by converting them into "dividend equivalents" through the use of swap contracts. 
• FATCA increased penalties and imposed certain negative presumptions on Americans whose accounts are not located in U.S.

These reporting requirements are in addition to the requirement for all U.S. persons for reporting of non-U.S. financial accounts to the U.S. Financial Crimes Enforcement Network (FinCEN); this most notably includes Form 114, "Report of Foreign Bank and Financial Accounts" (FBAR) for foreign financial accounts exceeding US$10,000 required under Bank Secrecy Act regulations issued by the Financial Crimes Enforcement Network.

FATCA Indicia

Banks which are performing functions according to FATCA law will be searching according to FATCA indicia, which includes:

• A U.S. place of birth
• Identification of the Account Holder as a U.S. citizen or resident
• A current U.S. residence or mailing address (including a U.S. PO box)
• A current U.S. telephone number
• Standing instructions to pay amounts from a foreign (meaning non U.S.) account to an account maintained in the United States
• A current power of attorney or signatory authority granted to a person with a U.S. address
• A U.S. "in-care-of" or "hold mail" address that is the sole address with respect to the account holder
• Special note: Others affected by FATCA include
• any non U.S. person who shares a joint account with a U.S. person or otherwise allows a U.S. person to have signatory authority on the account.
• Any business or not for profit organization that allows a U.S. person to have signatory authority on a financial account.

https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act