The Foreign Account Tax Compliance Act (FATCA) is a U.S. law with the purpose to detect and impede the evasion of tax by U.S. persons including individuals who live outside the country. The purpose of FATCA is to eliminate and discourage offshore tax evasion by citizens or residents.
U.S. individuals are required to report their financial accounts held outside of the U.S. and Foreign Financial Institutions (FFIs) are required to report to the American Internal Revenue (IRS). This will significantly increase the transparency for the U.S. Internal Revenue Service (IRS).
According to the U.S. Treasury Department more than 80 nations agreed to the law and have concluded agreements with the U.S. Government. Cyprus and Singapore are amongst the countries which have recently signed these agreements.
The U.S. Treasury Department has issued two model Intergovernmental Agreements (IGAs).
The IGA is a bilateral agreement between a country’s government and the U.S. Government that facilitates compliance with FATCA. The model agreements bounds FFIs in designated jurisdictions to comply with FATCA. There are currently two types of IGAs, Model I and Model II.
The first agreement, Model I IGA, requires FFIs to report all FATCA related information to their national governmental agencies, which would then report to the IRS. Cyprus and Singapore have signed IGA Model I.
The second version of the IGA, Model II IGA, requires FFIs to report all FATCA related information directly to the IRS. Under such IGA, FFIs will need to register with the IRS.
The banks which are registered and operate in jurisdictions which have signed the FATCA Intergovernmental Agreements with U.S. will need to revise their existing processes and procedures in order to become compliant with FATCA. The aim of the banks will be to gather and verify information about their clients and then report FATCA related information to the IRS and/or local government authorities.
The changes from the banking industry worldwide are definitely noticeable, as many banks have already implemented changes to their current business practices.
Here at Eltoma Corporate Services we can assist with your FATCA related requirements.
Please contact us for further information.