FATCA (Foreign Account Tax Compliance Act), requires all foreign financial institutions (FFIs) to enter into an agreement with the US government and disclose foreign account information of US citizens and green card holders, as they are liable to taxation of worldwide income. The move is to ensure greater tax compliance via the exchange of information.
FFIs who fail to supply this information to the US government under FATCA will be subject to a punitive withholding tax on all payments cleared through the United States banking system. Indian financial institutions, like in other countries, are required to disclose account information of US account holders (including NRO and NRE bank accounts of NRIs). This information can be used to investigate US taxpayers who have not disclosed their offshore accounts. Because of FATCA, and additional compliance requirements, many mutual funds restrict investments by NRI and PIO from the USA.
FBAR (Report of Foreign Bank and Financial Accounts): US persons (including US citizens and green card holders in India) are required to annually report their foreign financial accounts when the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported. US persons must file Form 114 (also known as FBAR, to report all foreign financial accounts, above the threshold amount, to the US government. This filing into the BSA E-Filing System is separate from the filing of the Income Tax return. The failure to file Form 114 could lead to financial penalties as well and criminal prosecution based on the type and amount of non disclosure.
The FATCA related information reported on US account holders to the US government can be “matched” to FBAR reporting to identify those who fail to report or under report foreign assets and/or income.
Form 8938 (Statement of Specified Foreign Financial Assets) is where a tax payer would report certain foreign financial assets in income tax returns. The threshold for reporting details will vary depending on the where the tax payer is resident, in USA or abroad.
In Summary, FATCA is reporting done by the Foreign Financial Institutions (FFI) about bank accounts held outside US., FBAR is reporting by the tax payer on financial accounts with balances into the BSA E Filing System, and Form 8938 reporting is done by the US tax payer on foreign financial asset when filing Income Tax returns. FATCA, FBAR and 8938 reporting are key elements of US taxation compliance, pertaining to global income and assets.
