The Foreign Account Tax Compliance Act, or FATCA, is a tax rule that was enacted by the United States in 2010. What the rule does is compel other countries to disclose financial information of American citizens that are using their banks to hold money and assets. Any account over $50,000 in a foreign country must be disclosed to the U.S. How did the country achieve such a wide-reaching position? Why are countries complying with this rule?
Well, FATCA can punish other countries by essentially freezing them out of the U.S. market if those countries don’t comply and pass over the necessary information to the U.S. It’s a brilliant, albeit devious, strategy that has worked for the U.S., allowing the country to tax its citizens regardless of where they keep their money.
Such a sprawling and ambitious law couldn’t immediately go into effect though, and so over the last five years FATCA has been ramping up. It’s now in full effect, and at least 80 nations are complying with the law. You can rest assured that almost every (if not every) major nation is complying, so if you are holding money in an account in a different country and it exceeds the $50,000 limit, the U.S. is going to know about it.
FATCA isn’t necessarily something to fear. But it is something that you absolutely need to be aware of if you are holding money in a different country. There is a new process with FATCA — Form 8938 — that needs to be completed, and yet the old processes — FBARs, or Report of Foreign Bank and Financial Accounts — are still in effect too. Just be prepared for these processes when you need to fill out your taxes or deal with the IRS.
Source: Forbes, “Facts About FATCA, America’s Global Disclosure Law,” Robert W. Woods, May 14, 2015