What is FATCA?
FATCA stands for Foreign Accounts Tax Compliance Law. It is a law that requires American citizens to provide details of their financial accounts outside the U.S. to the IRS. The legislation was enacted in 2010 as the HIRE law. The law aims to avoid U.S. taxpayers from avoiding US-based taxation on the income and assets of real and legal persons and to establish a transparent, traceable tax system.
Most importantly, the legislation imposes a huge legal obligation on all foreign financial institutions to determine who is the “U.S. Person” among its customers and to report directly to the IRS information in their accounts. This task is supported by brutal enforcement mechanisms that enable almost all non-US financial institutions to comply. Under this agreement, even if income is generated in a foreign country, income tax must be paid to the U.S. government. Attention should be paid to new self-reporting requirements for foreign financial assets for Americans abroad.
Bilateral agreements have been signed between the U.S. and other countries for mutual exchange of information between the states as part of the adoption of FATCA.
Under FATCA, financial institutions should determine their taxpayers in accordance with the criteria in the legislation, provide the necessary information and documents, and transmit the information of those concerned by the declaration to the authorized institutions.
Why FATCA was created?
The U.S. Treasury created the FATCA to ensure that U.S. citizens comply with U.S. tax rules. Before implementation, the U.S. government discovered that U.S. taxpayers lost billions of dollars in tax revenue annually, as they kept cash in overseas banks and other financial institutions. To combat this, the United States has prepared legislation - the Foreign Account Tax Compliance Act - which requires other countries to disclose financial accounts held by Americans abroad.
The main purpose of FATCA is to detect, deter, and deter tax breaches through increased transparency, increased reporting, and strong sanctions.
Who is affected by FATCA?
•Natural persons with ties in the United States (U.S. citizens, U.S. birthplace, Greencard owners, U.S. contact/residence address or U.S. telephone number, resident in the U.S.).
•Legal persons with ties in the USA (those with U.S. address, based in the U.S., for non-operative companies, at least one of the natural persons controlling the institution is a U.S. citizen or resident).
•Specific financial institutions (financial institutions that hold an account that can be considered an asset on behalf of their customers, for example, banks, investment companies).
Information on persons who do not submit documents to the institution will be transmitted to the IRS. Information to be transmitted: Name, address, tax identification number, and financial information will be provided.
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