What Is FATCA?
The Foreign Account Tax Compliance Act (FATCA) was enacted by the U.S. Congress under the HIRE Act in
2010 to improve tax compliance by U.S. persons. FATCA achieves this by requiring non-U.S. financial
entities to report the identities of U.S. account holders to the IRS and by assessing a new U.S.-sourced
withholding tax against foreign entities for non-compliance. In summary, FATCA requires “foreign
financial institutions” (“FFIs”) to identify their U.S. account holders to the IRS, while also mandating that
“non-financial foreign entities” (“NFFEs”) disclose substantial U.S. owners to the IRS. This regulation came
into effect July 1, 2014.
How Does It Work?
While the primary objective under FATCA is reporting, the penalty for non-compliance requires a payor
(including a U.S. withholding agent) of U.S.-sourced income and gross proceeds to withhold 30% on
payments made to non-U.S. entities that do not certify their compliance with FATCA. To avoid this tax,
FFI’s must enter into agreements with the IRS to share the identities of U.S. account and asset holders.
Other affected NFFE’s seeking to avoid the tax will be required to provide information relating to any of
their U.S. owners.
What Will Be Different?
FATCA requires U.S. banks to enhance the information they collect about non-financial foreign entities
(NFFEs) and FFIs. Failure to provide satisfactory information will result in the application of a 30%
withholding tax on payments of U.S.-sourced fixed, determinable, annual or periodic (FDAP) income.
Examples of FDAP income could include: payment of interest, dividends, rents, salaries, wages,
premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable
annual or periodical gains, profits and income.
Additionally, the U.S. Internal Revenue Service (IRS) has issued new tax forms, most notably Form W-8BEN
and Form W-8BEN-E. Account holders will be expected to use these new forms to confirm their FATCA
status with their financial services provider.
What Information Is Being Shared?
The establishment of the Model 1A Intergovernmental Agreement (IGA) results in the exchange of
information between the U.S. and the partner country that has enrolled in the IGA. FFI’s located in such a
partner jurisdiction are required to disclose their U.S. account holders to the tax authority of the partner
country, who in turn will exchange that information with the IRS. In return, the IRS has agreed to provide
the partner country information regarding certain “reportable accounts” maintained by U.S. financial
institutions on behalf of account holders residing in the partner country.
Brickell Bank continues to comply with all laws and regulations applicable to its business activities in the
United States, and has implemented policies and procedures to be compliant with FATCA’s requirements.
To ensure your ongoing compliance with FATCA, you should consult your tax advisor to understand your
tax status and determine any steps you should take to address your personal situation. Additional
information can also be found at the U.S. Internal Revenue Service website.