FATCA: Reporting Criteria for Foreign Financial Assets

BUSINESS CONSULTING

1/12/20242 min read

FATCA, which stands for Foreign Account Tax Compliance Act, is a legislation enacted by the United States government in 2010 to combat tax evasion by U.S. citizens and entities through offshore accounts. This law imposes certain reporting requirements on individuals and entities who own foreign financial assets.

Who is it for?

FATCA applies to both individuals and U.S. entities who meet the reporting criteria for foreign financial assets. Individuals who are subject to FATCA include U.S. citizens, green card holders, resident foreigners, and other individuals who meet the substantial presence test for U.S. tax purposes. U.S. entities that fall under the scope of FATCA include corporations, partnerships, trusts, and other legal entities formed in the United States.

What assets need to be reported?

Under FATCA, individuals and entities are required to report their foreign financial assets if they meet certain thresholds. These thresholds vary depending on whether the individual or entity is residing in the United States or abroad.

For individuals residing in the United States, the reporting threshold is as follows:

  • $50,000 for unmarried individuals

  • $100,000 for married individuals filing jointly

For individuals residing abroad, the reporting threshold is:

  • $200,000 for unmarried individuals

  • $400,000 for married individuals filing jointly

Entities, on the other hand, need to report their foreign financial assets if the total value of these assets exceeds $50,000 at the end of the tax year or $75,000 at any point during the tax year.

Foreign financial assets that need to be reported include, but are not limited to:

  • Foreign bank accounts

  • Foreign investment accounts

  • Foreign mutual funds

  • Foreign stocks and securities

  • Foreign retirement accounts

  • Foreign life insurance policies

It is important to note that FATCA reporting requirements also extend to certain foreign entities in which U.S. individuals or entities have a substantial ownership interest.

In conclusion, FATCA is applicable to individuals and entities who own foreign financial assets and meet the reporting criteria. It is crucial for those falling under the scope of FATCA to understand their obligations and ensure compliance with the reporting requirements set forth by the legislation.