What is FATCA? | FATCA Full Form | FATCA Term

The Foreign Account Tax Compliance Act (FATCA) is a 2010 U.S. federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report such assets and identities of such persons to the United States Department of the Treasury. FATCA also requires such persons to report their non-U.S. financial assets annually to the Internal Revenue Service (IRS) on form 8938, which is in addition to the older and further redundant requirement to report them annually to the Financial Crimes Enforcement Network (FinCEN) on form 114 (also known as ‘FBAR’). Like U.S. income tax law, FATCA applies to U.S. residents and also to U.S. citizens and green card holders residing in other countries.
FATCA applies to all subjects identified as U.S. person. All U.S. citizens are U.S. person by default, but a non-U.S.-citizen can be eligible as U.S. person for tax purposes, for example, Green Card holders and corporations under certain criteria. Inhabitants of unincorporated U.S. territories (American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico or the U.S. Virgin Islands) are conciliated with a Resident Based Taxation. However, financial institutions are notified that U.S. taxpayer identification number (TIN) information is mandatory for all reportable accounts with FATCA reporting obligations, even residents of those territories do not pay taxes to the mainland U.S.A. Likewise, FATCA does not apply to Banks in Puerto Rico since they are classified as “Territory Financial Institutions”. Nonetheless, customers in Puerto Rico must complete forms W-8BEN and W-8BEN-E as part of the account opening process and reportings are almost the same as other U.S. banks. However, Puerto Rico’s Act 273 is that FATCA, Common Reporting Standards (CRS) and Intergovernmental Agreements (IGA) signed between the United States and a foreign country do not apply to International Financial Entities in Puerto Rico.
FATCA was the revenue-raising portion of the 2010 domestic jobs stimulus bill, the Hiring Incentives to Restore Employment (HIRE) Act, and was enacted as Subtitle A (sections 501 through 541) of Title V of that law. According to the IRS, “FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.” The U.S. has yet to comply with FATCA itself, because as of 2017, it has not yet provided the promised reciprocity to its partner countries and it has failed to sign up to the Common Reporting Standard (CRS). FATCA has also been criticised for its effects on Americans living overseas, and implicated in record-breaking numbers of U.S. citizenship renunciations throughout the 2010s and 2020s. Bills to repeal FATCA have been introduced in the U.S. Senate and House of Representatives.