Sana Ragbir, CFA
AGM, Investment Management
First Citizens Investment Services
FATCA: How can it affect you?
As we approach the start of 2014, FATCA will become even more
prominent in the headlines. Until now, the term has been used
among financial institutions and governments, but soon enough the
wider public will need to understand the implications of this Act that
will affect the world of investing and banking.
FATCA is the Foreign Account Tax Compliance Act which
was enacted by the United States (US) Congress in March
2010. The goal of this Act is to identify US taxpayers to the
US Internal Revenue Service (IRS) and to ultimately prevent
tax evasion by US taxpayers who may “hide” their US assets
outside of the United States in international institutions. It
is estimated that the United States loses some 7.5% of its
total Government revenue through tax evasion. As the United
States struggles to reduce its growing fiscal deficit, FATCA
was created to potentially increase the tax revenues of the US
government and thus reduce the deficit.
FATCA will affect US persons. The definition of a “US
person” by the IRS is very broad and can include green card
holders and US citizens who are not necessarily residents of
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Caribbean Investment iQ December 2013
the United States. The Caribbean region has many persons
who are green card holders and US citizens who do not reside
in the US. If any of these persons have any US assets or
forms of US income they could be subject to FATCA rules.
In order for the IRS to detect these US persons, Foreign
Financial Institutions (FFIs) such as local banks, brokerdealers, investment management firms and insurance
companies who possess US accounts and who deal with US
assets and currency will have to report their US customer
accounts to the IRS.
The main objective of FATCA is reporting and disclosure of
the US source income of US persons to avoid tax evasion.
There are two main options available to ensure that FFIs
comply with the requirement of disclosure and reporting.