The Foreign Accounts Compliance Tax Act is designed to ensure that US citizens who hold assets abroad pay relevant taxes.
FATCA targets foreign financial institutions and penalties for non-compliance will be punitive. It takes effect from January 1 2013, and institutions have between now and then to comply with the act’s provision. Reporting requirements are vastly increased under the act: they will touch foreign financial institutions in every jurisdiction and could change correspondent banking.
The US government introduced FATCA as part of the Hiring Incentives to Restore Employment Act, to reinvigorate the US economy by imposing high tax rates on funds held by US citizens in foreign and offshore jurisdictions. The onerous requirements depend upon the use of US dollar, the world’s foremost reserve currency, to track unpaid, avoided or evaded taxes that the government wants to repatriate.
Any person who has an account in a foreign jurisdiction should be made known to the Internal Revenue Service. There are clear implications for correspondent bank accounts with US banks, and more for US citizens or entities who participate in funds and securities, or have shares outside the USA.
FFIs must examine means of identifying US accounts: dual citizenship and complex corporate structures will be forced under the microscope. Although the act is not yet implemented, switched on banks are taking action to limit their exposure to US accounts.
In this ten minute conversation with Bachir Al Nakib, the head of compliance oversight at Industrial Bank of China in Qatar, we learn about the aspects of FATCA that will affect non-US banks.
Future discussions with Al Nakib will address the role of the qualified intermediary, and 30 per cent withholding tax, and key implementation dates and will be published on this portal in the coming weeks.