CPA & Business Advisory Blog

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Are You in Compliance with FATCA?

What is FATCA?

Enacted in 2000 and effective July 1, 2014, the intent of FATCA is to prevent U.S. taxpayers from hiding assets overseas. The Act requires foreign financial institutions and other foreign entities to file reports with the IRS identifying their U.S. account holders or major investors.

Specifically, FATCA focuses on reporting by:

  • U.S. taxpayers, (including those living outside the U.S.) about certain financial accounts and offshore assets
  • Foreign financial institutions about financial account held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest

How it Works

The Act encourages compliance by imposing a 30 percent withholding tax on certain U.S.-sourced payments—including interest, dividends, rents, royalties and compensation. Effective since July 1, 2014, U.S. entities and others in control of these payments have to withhold 30 percent of payments to noncompliant foreign entities. In order to avoid the statutory withholding tax, certain IRS forms are required to be obtained from the recipient prior to payment. Under an IRS audit, the payor is the responsible party with regard to the withholding tax liability.

What to Do

If your company makes payments to foreign entities, your tax advisors can help you verify and document their FATCA status and determine your withholding requirements.

To determine whether you need to comply with FATCA and how best to document your foreign vendors to avoid potential withholding tax liabilities, a review of your accounts payable process is highly recommended.

Click here to continue reading about the hottest topics in international tax in our free e-book, Going Global: International Tax Issues to Consider Before Expanding Overseas.

If you have any questions about the content in the article, or would like to learn how your business can succeed overseas, contact Jason Rauhe at 888-201-4484or email jrauhe@skodaminotti.com.

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