What is FATCA?

The FATCA works like. 

First, FFIs register with the IRS, then get the information of the US account holders, then FFIs identify US taxpayers' accounts and send the report to the local tax authority, and the IRS and The information sent by the FFIs is compared by the IRS with the tax returns filed by the US taxpayers to identify and prevent tax evasion.

Here are some of the key takeaways of FATCA: 
 

• FATCA needs to report the annual reports of residents and US citizens of foreign financial assets over 50,000 USD to report to the IRS to prevent tax evasion. 
• Foreign financial institutions report the US account holders' information, or those who face a 30% withholding tax on the financial income generated in the US. 
• If the US taxpayers living in a foreign country have a higher threshold than he or she need to file, if the specified foreign financial assets are more than 2,00,000 USD. 
• FATCA compliance is costly for the foreign financial institutions, potentially reaching millions of dollars for large banks. 
• If any us taxpayers continuously fail to file, then they may get penalties for non-compliance, including a $10,000 fine and some other penalties.

Given below are some of the principal clauses of FATCA.

• FATCA encourages smooth tax compliance and prevents US citizens from using foreign accounts to evade taxation on income and assets. 
• It requires FFI to report information directly to the IRS about US account holders. 
• Withhold a portion of the payments of non-compliant FFI and account holders who fail to provide the necessary information. 
• NFFEs (Non-Financial Foreign Entities) have to provide substantial US owners or must certify that they don't have such owners.  
• In the Form 8938, a US taxpayer must report their holding of specified foreign assets. 

The following are considered a US person under the FATCA:
 

• Residents and US citizens. 
• Estates other than foreign estates. 
• Domestic corporations and partnerships. 
• Trust, if the US court exercises primary supervision over the trust's administration, the US person has the authority to control the decision of the trust.
• Students who have an F1, QPT, J1, and Q visa are considered non-resident aliens for a period of 5 years and are exempt from the substantial presence test for 5 years. 
• Teachers and researchers who have a J1 and Q visas are considered non-resident aliens for a period of two years and are exempt from the substantial presence test for 2 years.