Foreign Account Tax Compliance Act (FACTA) - Explained
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Table of ContentsWhat is the Foreign Account Tax Compliance Act (FATCA)?How Does the Foreign Account Tax Compliance Act Work?Academic Research on the Foreign Account Tax Compliance Act
What is the Foreign Account Tax Compliance Act (FATCA)?
In the United States, the Foreign Account Tax Compliance Act (FATCA) is a law that requires all citizens of the US who are either at home or in foreign countries to file a report on their account holdings. FATCA compels foreign business owners and companies to file assets being held by U.S citizens to the United States Department of Treasury. FATCA was passed in 2010 as part of the HIRE Act. U.S citizens who are resident in the U.S and those who reside in other countries are compelled to file their annual account holdings both foreign and local.
How Does the Foreign Account Tax Compliance Act Work?
In order to enhance accountability and transparency in the global financial services sector, the HIRE act came into force in 2010. Barack Obama, a former president of the U.S signed the act into law. HIRE is an acronym for Hiring Incentives to Restore Employment. FATCA is a federal tax law that was passed as a part of HIRE, its purpose is to generate revenue to stimulate employment in the U.S. All citizens of the U.S are mandated to abide by FATCA, individuals are required to file an annual report of assets they hold outside of U.S. Assets held by U.S citizens in freign countries are taxed to further generate revenue for the government. Citizens who fail to comply with this federal tax law face penalties. FATCA is applicable not only to US citizens but is also applicable to Non-U.S. Foreign Financial Institutions (FFI) and Non-Financial Foreign Entities (NFFE). According to the FATCA law, these institutions are compelled to give a report of assets owed by U.S citizens in their organizations, The worth of the assets and the identity of the citizens are also to be disclosed. Failure for these institutions to comply with this law attracts a penalty such as the institution being withheld from the U.S market and payment of fines. Generally FATCA was enacted to avert tax evasion by US citizens who do business and earn taxable income outside of the U.S.