FACTA Frequently Asked Questions – The Basics
Unleashing the Mystery: A Guide to FACTA for Millennials
You've probably heard of FACTA, but what is it exactly? And more importantly, how does it affect you? Let's break down the basics of this legislation and answer some frequently asked questions to help you stay in the know.
What is FACTA?
FACTA stands for Foreign Account Tax Compliance Act. It was enacted in 2010 and is aimed at detecting and deterring offshore tax evasion by U.S. citizens and residents.
Who is impacted by FACTA?
FACTA impacts foreign financial institutions (FFIs) and U.S. citizens and residents who hold foreign accounts.
What does FACTA Require?
FACTA requires FFIs to enter into an agreement with the Internal Revenue Service (IRS) to report information about their U.S. account holders to the IRS.
What qualifies as a Foreign Financial Institution (FFI)?
An FFI is any foreign entity that is engaged in the business of accepting deposits or holding financial assets for the account of others. This includes banks, insurance companies, mutual funds, and other types of financial institutions.
What does FATCA require of FFIs?
FFIs must report information about their U.S. account holders to the IRS, including name, address, taxpayer identification number, and account balance.
What is a With holdable Payment?
A withhold payment is any payment of U.S. source income to an FFI that is subject to a 30% withholding tax under FACTA.
What is an FFI Agreement?
An FFI agreement is an agreement between an FFI and the IRS in which the FFI agrees to report information about its U.S. account holders to the IRS.
What does the FFI Agreement require?
The FFI agreement requires the FFI to provide the necessary information to the IRS to help the IRS determine whether an account is a U.S. account and whether the account holder has met their U.S. tax obligations.
What is a U.S. Account?
A U.S. account is any financial account held by a U.S. person. This includes accounts held by U.S. citizens and residents, as well as U.S. owned foreign entities.
What is a U.S. Owned Foreign Entity?
A U.S. owned foreign entity is a foreign company that is owned by one or more U.S. persons.
How does a FFI become a compliant FFI and not have to enter into a FFI Agreement?
To become a compliant FFI, the FFI must enter into an agreement with the IRS and comply with FACTA reporting requirements.
What happens if an account holder doesn’t provide the necessary information to the FFI so that the FFI cant determine if it’s a U.S. account?
If the account holder doesn't provide the necessary information, the FFI may be subject to a 30% withholding tax on payments made to the account.
What happens if a country’s privacy laws prohibit a FFI from releasing private information about its account holders?
If a country's privacy laws prohibit the release of private information, the FFI may be exempt from reporting requirements under FACTA.
When should an FFI enter into an FFI Agreement?
An FFI should enter into an FFI agreement as soon as possible, as the IRS has set deadlines for FACTA compliance.
How does a FFI register with the IRS?
An FFI can register with the IRS through the FATCA registration website.