CA Nirmal Ghorawat's Blog

FATCA (or Foreign Account Tax Compliance Act) is a United States of America law promulgated in 2010 to enforce USAs new bank reporting requirements throughout the financial world by negotiating a number of bilateral treaties and agreements with other countries.

FATCA is intended to promote cross border tax compliance of US resident taxpayers by implementing an international standard for the automatic exchange of information related to US taxpayers.

India & USA entered into a bilateral for FATCA reporting in 9 July, 2015.

Non Resident Indians (NRIs) / Persons of Indian Origin (PIOs) resident in the United States of America and also PIOs who are USA Citizens even though not resident in USA have always been required to report their worldwide income to the US Inland Revenue Service (IRS). The requirement includes reporting Specified foreign financial assets along with annual tax return in US IRS Form 8938 if exceeding reporting thresholds. Additionally, US taxpayers who have a financial interest in or signatory authority over an offshore financial account, they must report the account on an FBAR (Form 114).

Reporting thresholds – Values on the last day of the tax year

Reporting thresholds – Values exceeding at any time during the tax year

US Tax subjects are considered to live abroad if they are a U.S. citizen whose tax residence is in a foreign country and they have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.

Specified foreign financial assets include foreign financial accounts and foreign non-account assets held for investment (as opposed to held for use in a trade or business), such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interests in foreign entities.

Foreign financial accounts held by US Citizens or US resident taxpayers must be reported on an annual Form 8966 with the US IRS by the respective foreign financial institutions.

The monetary penalty for failure to report the existence of foreign financial accounts (and pay US income tax on income so earned) is substantial at an amount of USD 10,000 failure to file penalty, an additional penalty of up to USD 50,000 for continued failure to file after US IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.