The Foreign Account Tax Compliance Act (FATCA) went into effect in 2010. This law requires all foreign institutions outside of the United States to report assets and identities of account holders that are United States citizens. Failure to comply can result in serious ramifications, including steep financial penalties.
How has this law impacted the industry? According to a recent piece in the International Adviser, the law has led to one big change: specialization. After the passage of FATCA banks could not simply take on clients with citizenship in the United States without knowledge in these laws.
In order to find success dealing with U.S. citizens, foreign financial institutions were required to specialize in application of this law. As noted in the publication, the penalties wielded by the U.S. for violation of FATCA were effective. Banks either complied with the law or went out of business.
Has FATCA impacted whether U.S. citizens use foreign accounts? The law has led to additional requirements and hurdles for U.S. citizens with foreign accounts. One hurdle is the fact that a number of foreign banks will not do business with U.S. citizens to avoid dealing with FATCA.
Advantages remain. Foreign financial institutions willing to take on U.S. clients are abundant. In the current market, some are pulled by the comfort of jurisdictional diversification that comes with the presence of accounts in countries other than one’s home. Other benefits include ease of use for those who live or travel extensively abroad and business opportunities for those with global corporations.
Those who choose to maintain foreign financial accounts must do so wisely. Various reporting requirements are present and a failure to properly disclose these assets can lead to questions from the Internal Revenue Service (IRS). Due to these complexities it is wise to seek legal counsel in the event the IRS contacts you with questions about such accounts.