FATCA (Foreign Account Tax Compliance Act)
A US law requiring foreign financial institutions to report accounts held by US taxpayers to the IRS.
What is FATCA?
FATCA (Foreign Account Tax Compliance Act, enacted 2010) requires foreign financial institutions (FFIs) — banks, brokerages, insurance companies — to identify and report accounts held by US taxpayers to the Internal Revenue Service (IRS). Non-compliant foreign banks face a 30% withholding tax on US-source income. US taxpayers with foreign accounts above $50,000 must also file Form 8938 (FATCA report) with their tax return. FATCA was enacted to combat tax evasion through offshore accounts following high-profile cases involving Swiss banks. It has made offshore tax evasion significantly harder and prompted thousands of Americans living abroad to renounce citizenship due to complex compliance burdens.
Example
In 2014, Credit Suisse pleaded guilty to helping thousands of US clients hide assets in offshore accounts to evade taxes and paid $2.6 billion in fines. FATCA's implementation created significant pressure on Swiss and other foreign banks to either register with the IRS, report US account holders, or stop serving US clients entirely — fundamentally changing offshore banking.