The Foreign Account Tax Compliance Act (FATCA) was established in 2010 to set an international tax standard for US taxpayer information. It requires that foreign financial institutions report on foreign assets held by US taxpayers on an annual basis. The IRS requires this information to assess taxes owed and to close tax loopholes. It also limits but not curtails individuals and corporations from moving assets overseas to avoid taxes.
What You Need to Do to Comply with FATCA
The Internal Revenue Service (IRS) has specific instructions for both individuals and corporations. They also have set a certain asset level for compliance. All individuals that have foreign financial assets of more than $50,000 have to report those assets or risk severe penalties. There are certain exceptions to this which are listed on the IRS website. US corporations required to withhold 30% of their source payments to foreign corporations. They also need to report IRS information on certain non-financial foreign entities. Foreign corporations can elect to withhold 30% on payments but are not required to do so.
What is the Reason behind FATCA?
FATCA was originally established as part of a revenue stimulus package. The Hiring Incentives to Restore Employment (HIRE) Act provided the means to crack down on tax evaders and create an incentive for US corporations to remain in the US. Its primary purpose was to recover taxes owed by US citizens from these foreign entities.
What groups and organizations are affected by FATCA?
Multi-national corporations are the most affected by FATCA. All foreign entities that conduct business in the US definitely need to comply with this act. US corporations who do business with foreign entities also need to be compliant. Individuals that have foreign assets need to be concerned with complying with this act to a certain degree. There is no set provision for setting a tax on these assets.
Intergovernmental agreements (IGAs) provide some guidelines for data collected including foreign taxes paid by US taxpayers and corporations. These guidelines provide a safeguard, so taxpayers are not paying twice for the same asset. They also have helped businesses set financial standards.
How Professional Tax Preparers and Accountants Can Help You
Various international tax preparation services include the forms and documentation you’ll need to comply with this act. They can help you with the complex international taxes that your company or you personally may owe a foreign entity. Navigating the sea of “red tape” that foreign governments have in place is an important benefit that many professional tax preparers offer. The advantages of using professional tax preparers vs doing it by yourself are numerous.
The FATCA has made a dent in capturing tax evaders and creating an international standard for taxes. It has helped corporations and individuals recover funds. It has also created an incentive for some businesses to remain in the US. Tax preparers that regularly work with foreign entities have a much clearer understanding of foreign tax codes and regulations.