Understanding FATCAJohn Kevin
May 28, 2012 — 1,423 views
The limits of the value of these assets are fixed and any assets above this value have to be declared to the IRS by the taxpayer. This act is not only meant for individual tax payers but also for companies.
Different kinds of organizations have different obligations as far as FATCA is concerned. Non-U.S. Financial Institutions that could be Qualified- Intermediaries or Nonqualified- Intermediaries have different obligations than U.S. Withholding Agents or U.S. Multinational Corporations, or even a Non-U.S. Non-Financial Entity. FATCA explains what kind of organization has obligations to what extent. The main features of FATCA or Foreign account tax compliance act explains the question "What is FATCA?"
Some of these features of FATCA are:
• Non-US banks are obliged to reveal all financial details of all American citizens who hold accounts in the bank. Information that has to be made known to the IRS includes account balance, all receipts and withdrawals. Or else the banks have to withhold 30% of the income as income tax that has to be paid to the IRS.
• All assets that are valued greater than USD 50000 and are held outside the US have to be disclosed on Form 8938 along with the standard tax returns. The limits are greater in the case of US citizens who are living abroad. There are hefty fines of 40% if all assets outside the US are not disclosed.
• FATCA tries to cover up the loopholes that many foreign investors are using to dodge taxes by different way, which is a direct loss to the US exchequer. With implementation of FATCA they will be forced to pay their taxes.
FATCA is a new law that has not yet been implemented but is supposed to be implemented from 2014. Since the legislation is new, financial experts, banks and other financial institutions are still in the process of understanding what is FATCA and finding the implications and effects of this Act on various international businesses.
Many international banks are skeptical about the implementation of the law and see it as unfair to US citizens who reside abroad. Experts feel that the law will cause more harm than benefit to the US economy as money would rapidly flow out of the country because of the controls that this law would try to impose.
Many organizations that represent US non-resident citizens have explicitly opposed the FATCA and have taken up cudgels against the Foreign account tax compliance act as it is not in the best interest of all citizens. There are also doubts in the international financial community about the law's executability.