U.S. Foreign Account Tax Compliance Act Introduction
The Foreign Account Tax Compliance Act (FATCA) was passed in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires that Foreign Financial Institutions (FFI) and certain other non-financial foreign entities (NFFE) report on the foreign assets held by their U.S. account holders or be subject to withholding on withhold able payments. Requires U.S. citizens living at home or abroad to file annual reports on any foreign account holdings they have. FATCA applies to U.S. residents and to U.S. citizens and green card holders residing in other countries.
- Background and Purpose
FATCA was born out of a severe economic recession in the United States, when U.S. citizens use a variety of means to evade taxes, Irregular procedures for international financial institutions to report U.S. client income, and foreign companies or their foreign entities generally do not apply to the 1099 form, standby reports and withholding tax rules.
FATCA aims to prevent tax evasion and by American individuals and businesses that are investing, operating, and earning taxable income abroad, and to encourage better tax compliance; Force financial institutions to disclose their U.S. account holders or pay a steep penalty for nondisclosure. Additionally, FATCA shifts the burden of tax reporting and compliance onto any company holding or trading U.S. assets on behalf of others, etc.
- FATCA Tax
(1)
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FFI must withhold 30% on most sources of U.S. income, unless the foreign financial institution enters into an agreement with the IRS to report U.S. customers or NFFE reports substantial U.S. owners or certifies that it has no owners that are substantial U.S. persons to U.S. withholding agent.
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(2)
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FATCA also requires certain U.S. taxpayers holding financial assets outside the United States to report those assets to the IRS on Form8938.
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(3)
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In some cases, FATCA does not require withholding taxes or is not subject to FATCA. (Please consult a professional consultant of Kaizen for more details.).
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- U.S. Individual Taxpayer Information Filing Requirements
(1)
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Taxpayers living outside the United States.
(a) Unmarried taxpayers or Married taxpayers filing separate income tax returns: the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
(b) Married taxpayers filing a joint income tax return: the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. These thresholds apply even if only one spouse resides abroad. Married individuals who file a joint income tax return for the tax year will file a single Form 8938 that reports all of the specified foreign financial assets in which either spouse has an interest.
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(2)
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Taxpayers living in the United States.
(a) Unmarried taxpayers or Married taxpayers filing separate income tax returns: the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year (if are married taxpayers filing separate income tax returns, the value of your specified foreign financial assets in applying this threshold, include one-half the value of any specified foreign financial asset jointly owned with your spouse. However, report the entire value on Form 8938 if you are required to file Form 8938.).
(b) Married taxpayers filing a joint income tax return: the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
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- Types of Specified Foreign Financial Assets
If you are required to file Form 8938, you must report your Specified foreign financial assets, even if those assets do not affect your tax liability for the year, specified foreign financial assets include the following assets.
(1) Financial accounts maintained by a foreign financial institution.
(2) Foreign financial assets if they are held for investment and not held in an account maintained by a financial institution.
(3) Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession)
(4) Any interest in a foreign entity.
(5) Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person
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