What is FATCA?
FATCA stands for Foreign Account Tax Compliance Act, a new Act enacted by US government. The only purpose for introduction of this Act is to curb the tax evasion practices by US persons. FATCA requires sharing of earnings related information by the foreign financial institutions to the US government.
Who all are covered by the term US persons?
A US person includes any of the following:
- Person having a US citizenship,
- A green card holder,
- A non-resident Indian living in US as status of US resident as per their rules,
- Person who has born in US,
- Person who has given his US address or US contact number to Foreign Financial Institutions,
- Person who has given power of attorney or signatory authority to a US person,
- A company, firm controlled by one or more US persons.
What is Foreign Financial Institution?
A Foreign Financial Institution covers all Non-US based banks, mutual funds, brokerage etc. These institutions are required to report to the US government about all the financial transactions entered into by US persons. Failure to do so by them will attract withholding of 30% tax on all payments made to them from US. Just figure out how heavy it is for a bank to pay 30% of its cash inflows from US for no sharing of information. Hence the penalty for non-reporting seems very stringent.
What details are required to be reported?
Ans.:- Foreign financial institution is required to report following details about the US person:
- Tax identification number (same as Permanent Account Number in India),
- Residential address,
- Account number and account balance,
- Gross amount of interest, dividend, or any income earned, if any from the assets held by the US person,
- Gross proceeds from sale of property by the US person.
What is the monetary limit provided for reporting?
Ans.:- The provisions of FATCA will not be applicable if person is having assets less than US $50,000 of value in total.