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DEFINITION
FATCA
The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law enacted in 2010 to combat offshore tax evasion. FATCA requires foreign financial institutions (FFIs) to identify and report information about financial accounts held by U.S. taxpayers or foreign entities with significant U.S. ownership to the Internal Revenue Service (IRS).
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Acronyms
FATCA
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Synonyms
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Acronyms
FATCA
Examples
Under FATCA, a Swiss private bank must report details of U.S. clients’ investment accounts, including balances and income, to the IRS annually to maintain compliance.
FAQ
What types of financial institutions are subject to FATCA?
FATCA applies to a wide range of non-U.S. financial institutions, including banks, brokerages, investment funds, and insurance companies.
How do foreign financial institutions comply with FATCA?
FFIs can comply by registering with the IRS, conducting due diligence to identify U.S. accounts, and reporting required information annually. Many countries have signed intergovernmental agreements to facilitate FATCA compliance.
What are the penalties for non-compliance with FATCA?
Non-compliant FFIs face a 30% withholding tax on their U.S.-sourced income and may risk being excluded from U.S. financial markets. There are also potential fines and reputational risks.
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