FATCA, or the Foreign Tax Compliance Act, say international tax attorneys, is a new U.S law that will have a significant effect on the reporting of financial information and tax compliance for foreign accounts when it is implemented in 2014. The aim of this act is to combat tax evasion and recover finances owed to the U.S. government by requiring foreign banks to report their dealings with U.S. citizens and, similarly, individuals to report on their dealings with foreign banks.
The FATCA timeline:
- 2010. On March 18th, as part of the Hiring Incentives to Restore Employment Act (HIRE), FATCA was signed into law by the U.S. government. On August 27th, the IRS issues Notice 2010-60. This notice defines “foreign financial institution”, declares FATCA exemptions, account documentation and reporting requirements.
- 2011. On April 8th, IRS Notice 2011-34 revises requirements and provides clarity on priority concerns. On July 14th, IRS Notice 2011-53 gives foreign financial institutions more time to enter FATCA agreements and meet the requirements.
- 2012. On February 8th, proposed regulations are released with important changes, including updated timelines for grandfathered debt obligations, reporting and withholding.
- 2013. Final regulations are issued on January 17th. On February 14th, Switzerland and the U.S. sign an agreement on international tax compliance and the implementation of FATCA. On August 9th, the IRS portal opened and by December 31st, the foreign financial institution Agreement came into effect.
- 2014. The 1st of January will be the cut-off date for grandfathered obligation. April 25th will be the last date on which foreign financial institutions have to register for inclusion on the FFI list (safe harbor). The list will be published on 2nd June. 31st December is the deadline for FFI’s to complete remediation on pre-existing high-value accounts.
- 2015. On January 1st, foreign financial institutions will begin withholding on high-valued accounts that have been identified as noncompliant. They, along with U.S. Withholding Agents will also begin withholding on payments to identified noncompliant passive non-financial foreign entities. On March 15th, tax return reporting and information return reporting will begin.
- 2016. March 15th is the due date for annual tax return reporting and information reporting. Participating forging financial institutions (PFFIs) will begin withholding on all noncompliant individual accounts and undocumented entity accounts that were pre-existing accounts.
- 2017. On January 1st, withholding will begin on gross proceeds for USWAs, WAs and PFFIs. This includes withholding on “passthru payments”.
- 2018. On March 15th, gross proceeds will be included for year-end 2017.