What is a FATCA declaration?
FATCA stands for Foreign Account Tax Compliance Act. It is a US federal law that was enacted in 2010 with the aim of combating tax evasion by US citizens and residents holding assets and accounts outside of the United States.
Under FATCA, foreign financial institutions (FFIs) are required to report to the US Internal Revenue Service (IRS) on the financial accounts held by US taxpayers.
FATCA also imposes certain withholding requirements on payments made to foreign entities that do not comply with the law, which has prompted many foreign banks and financial institutions to comply with the regulations. The law has been controversial, with some critics arguing that it is overly burdensome and imposes significant compliance costs on FFIs.
Why does the bank ask for this form?
Under FATCA, foreign financial institutions (FFIs) are required to identify and report on their US account holders to the US Internal Revenue Service (IRS). In order to do this, FFIs must collect certain information from their account holders, including their US taxpayer identification number (TIN) and their status as a US citizen or resident.
By completing a FATCA form, a bank’s customer provides the bank with the necessary information to comply with the law and report on the customer’s account as required. Failure to provide the information requested on the FATCA form may result in the bank being unable to open or maintain the account, or in the bank being required to withhold a portion of the customer’s funds and remit them to the IRS.
Who needs to submit a FATCA declaration?
Under FATCA, both US taxpayers and foreign financial institutions (FFIs) have reporting obligations.
US taxpayers who hold financial assets outside of the United States that exceed certain thresholds must report those assets to the US Internal Revenue Service (IRS) on their annual tax returns. The thresholds for reporting are different depending on whether the taxpayer is living in the United States or abroad. US taxpayers may also be required to file additional forms, such as Form 8938, to report their foreign financial assets.
Foreign financial institutions, including banks, brokerage firms, and other financial entities, are required to report information on their US account holders to the IRS. To do this, FFIs must identify and document their account holders who are US taxpayers or who hold US indicia, such as a US birthplace or a US mailing address. FFIs must report this information to the IRS, either directly or through their own country’s tax authorities.
As part of their reporting obligations, FFIs may require their account holders to complete a FATCA form, such as a W-8 or W-9 form, to provide the necessary information for reporting purposes. Failure to comply with FATCA reporting requirements can result in penalties and other consequences.
FATCA is a law and banks need to comply with it here in the Philippines. If you are an American citizen living in the Philippines, you may have to make a FATCA declaration so that the bank can be compliant. Also you need to provide a FATCA declaration form in order to use your Philippine bank.
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