Why CFOs should care about FATCA

The Foreign Account Tax Compliance Act (FATCA) was brought into law in 2010. Designed to increase tax compliance by U.S. taxpayers with funds held overseas, FATCA has had wide-ranging implications since its introduction. Not only does FATCA impact U.S. taxpayers on an individual level, the legislation also imposes requirements on a number of entities, from private equity firms to banks and insurance companies, to ensure compliance. So here are the key highlights you should be aware of.

Who does this affect?

Foreign Financial Institutions (FFI) and Non-Financial Foreign Entities (NFFE) are required to identify which of their clients are U.S. persons and report to the IRS on those clients.

An FFI is broadly defined and can include banks, investment banks, insurance companies, mutual funds, pension funds, brokerage firms, private equity firms, and hedge funds, as well as their related parties.

An NFFE is a non-publically listed company or business registered outside the U.S. that has U.S. owners that individually hold a 10% or higher stake in the business.

By requiring FFIs and NFFEs to report on relevant U.S. persons, the U.S. government has targeted the main institutions where Americans could hold offshore accounts.

Penalties for non-compliance

An FFI or NFFE that does not comply with the reporting requirements under FATCA will be subject to 30% withholding tax on all U.S. source income, including dividends, interest, and wages. They will also be subject to 30% withholding on gross proceeds from the sale of U.S. source securities.

As it is unlikely that any individual or organisation would find a 30% withholding an acceptable result, it is essential that you ensure that your business remains compliant with FATCA to prevent such an outcome.

How to prevent withholding

FFIs and NFFEs can avoid FATCA withholding in different ways.

An FFI can agree in writing to provide information to the IRS on its U.S. account holders. If they do, they must report information such as the account holder’s name, address, taxpayer identification number, and account information. FFIs that are compliant with FATCA will then be issued a Global Intermediary Identification Number (GIIN).

Any FFI located in a country that has executed an Intergovernmental Agreement (IGA) with the U.S. can simply report to their local government, which will pass along that information to the IRS. IGAs are already in effect with a number of countries, including the United Kingdom, Hong Kong, and the United Arab Emirates.

An NFFE can avoid FATCA withholding by confirming that they either do not have any substantial U.S. owners or by disclosing the details of any such substantial U.S. owners. A substantial owner is defined as a person that has an interest of 10% or greater in the business.


The FATCA legislation was written very broadly. This means that it impacts a number of U.S. individuals, as well as the institutions that deal with them. In essence, FATCA needs to be considered whenever a transaction occurs outside of the United States and has some form of U.S. connection.

Understandably, many businesses may wonder how they can remain FATCA compliant, given the vast amount of information that potentially needs to be reported. DataTracks offers a one-stop solution that meets all FATCA and CRS software needs, meaning that it’s never been easier to remain compliant. By linking up with your internal systems, reportable accounts can be easily identified, leading to the provision of efficient and accurate regulatory reports