FATCA (Foreign Account Tax Compliance Act)
Reviewed by A US law requiring foreign financial institutions to report accounts held by US taxpayers to the US tax authorities; it applies regardless of where the person lives.
FATCA (the Foreign Account Tax Compliance Act) is a United States law aimed at identifying the foreign assets of US taxpayers. It requires financial institutions around the world to determine whether any of their clients are US persons and to report information on their accounts to the US tax service — directly or through their own country's tax authorities.
A key feature of the US system is that the tax obligations of US citizens and permanent residents are tied to status rather than place of residence: a US taxpayer reports worldwide income even while living abroad. This distinguishes the US approach from most countries, where tax residence is the deciding factor.
For investment migration, it is important that obtaining a second citizenship or residence permit does not cancel a US taxpayer's obligations under FATCA; they remain as long as the connection to the US exists. Questions about US tax status are handled with specialized tax advisers.
| What it is | a US law on reporting foreign financial accounts |
| Who it affects | US citizens and tax residents worldwide |
| Where it applies | financial institutions in most countries of the world |
| Not to be confused with | the multilateral CRS exchange standard |
| Role in investment migration | a second passport does not remove US obligations |
How it works in practice
- When opening an account, the bank checks the client's US ties: citizenship, green card, birthplace.
- Data on US persons' accounts goes to the US tax service directly or via local authorities.
- US citizens keep their US tax obligations wherever they live and whatever passports they hold.
- Some banks limit services to US persons because of FATCA compliance costs.
- In investment migration planning, the applicant's US status is considered first.
Common pitfalls
- ! The belief that a new passport cancels FATCA is wrong: the law attaches to a person's US status.
- ! Concealing US ties in bank forms is a serious violation with legal consequences.
- ! Renouncing US citizenship is a separate formal procedure with its own tax consequences.
- ! Some banks and funds simply refuse US persons, narrowing the range of available instruments.
FAQ
How does FATCA differ from CRS?
FATCA is a one-sided US law on reporting accounts of US taxpayers, whereas CRS is a multilateral system of mutual exchange among many countries. The US takes part in FATCA but not in CRS.
Does moving away from the US end FATCA obligations?
No. A US taxpayer's obligations are tied to status (citizenship or a green card), not to place of residence, and continue even while living abroad.
Does FATCA affect people with no US ties?
Not directly, but banks still screen for indicators of such ties: birthplace, addresses, phone numbers, powers of attorney. If no indicators exist, the account does not fall under US reporting.
What should a US citizen consider when obtaining a second citizenship?
A second passport does not remove the duty to file US returns and report accounts. Planning with a specialised tax advisor is essential; some ultimately consider formal renunciation of citizenship.
Why does the bank ask about place of birth?
Birth in the US signals possible American citizenship acquired by birthright. The bank must clarify the client's status and, if needed, include the account in reporting.
What are the risks of inaccurate information in the forms?
Refusal of service, account closure, withholdings on payments and legal consequences. Accurate self-certification is a baseline requirement of banks.