Foreign Account Tax Compliance Act (FATCA)

What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) represents the United States efforts to combat tax evasion and abuse by US persons holding investments outside of the United States. The Act establishes a new set of tax information reporting and withholding procedures. While not expressly aimed at non-US persons, the regulations do impose withholding taxes on certain non-US entities that decline to disclose their US investors or account holders.

Under FATCA, US persons must report to the US tax authority, Internal Revenue Service (IRS), their assets held in offshore accounts. In addition, the regulations require non-US financial institutions to report to the US tax authority certain information about financial accounts of US or US-owned investors and account holders.

What action is required for US persons?
No additional action is required for US persons. US persons, who include US citizens, Green Card holders and other legal residents, need only to complete Form W9 during the account application process to certify their tax status.

Does FATCA affect non-US accounts?
Yes. FATCA requires foreign financial institutions (FFIs) to furnish certain data directly to the IRS about any of their US taxpayer accounts or foreign entity accounts in which US taxpayers hold a certain level of ownership. FFI compliance with the new regulations becomes effective July 1, 2014 with the submission of electronic FFI applications to the IRS. The application forms are scheduled to be available through the IRS beginning January 2014.

All non-US persons and entities applying for and maintaining ETRADE accounts will continue to be required to fully disclose and identify the identity of their account’s beneficial owner(s). Through the IRS Form W-8, our account holders certify the beneficial owner’s country of tax residence. If you fail to provide a Form W-8, or do not resubmit a new W-8 when prompted upon the three-year expiration, additional withholding will apply.

Some entities not ordinarily considered to be financial institutions may be categorized under FATCA as an FFI. Therefore, it is important to review the details outlined by the IRS.

Is there a summary of FFI requirements?
While the regulations and compliance are far more complex than a brief FAQ can describe, the following offers a short summary of actions required by those defined foreign financial institutions. These requirements include:

Identify US taxpayers;
If US taxpayers refuse to waive their non-US country’s privacy or secrecy rules, then the US taxpayer account must be closed;Report to the IRS on the related US taxpayer activity within defined financial accounts; andWithhold 30% US tax on US source income against any US taxpayer or foreign entity failing to disclose information or comply with the FATCA regulations.
Additional Information & Resources

The IRS remains the most comprehensive and up-to-date resource about FATCA compliance, implementation, and document filing. The IRS continues to issue news releases and forms. Please feel free to visit the IRS FATCA Website for details.

FATCA Information for Individuals

Foreign Account Tax Compliance Act

IRS FAQs on FATCA