FATCA Guide – Regulation, Reporting, Filing Requirements, and Penalties


Authoritative Guide to FATCA Compliance, Requirements, Reporting, and Penalties

Many people want to have more opportunities to earn not just in the United States but also abroad. That’s why many Americans love to travel to different countries to find ways to make a living. Because of that, the Foreign Account Tax Compliance Act was implemented to help prevent hiding taxable income from the Internal Revenue Service for those taxpayers who have bank accounts and other similar shelters offshore. 

FATCA was endorsed in 2010 and was successfully implemented in 2014 as part of HIRE or the Hiring Incentives to Restore Employment Act. Since there was a high unemployment rate in the country during the financial crisis in 2008, Barack Obama signed the HIRE Act to provide business owners with the incentives to hire people who are currently unemployed. Hence, if you want to know more about FATCA, here’s a quick guide below for regulation, reporting, filing requirements, and penalties. 

What is FATCA?

The Foreign Account Tax Compliance Act is a vital development to get rid of tax evasion across the United States. Congress enacted FATCA to target those taxpayers who didn’t comply with the requirements when they have foreign accounts. In fact, the IRS or the Internal Revenue Service, and the Treasury Department in the U.S. continue to provide guidance concerning this particular tax law. 

As mentioned earlier, FATCA is part of the HIRE or Hiring Incentives to Restore Employment Act, which provides incentives to business owners who hire people who are currently unemployed. Besides that, FATCA creates new reporting and withholding requirements and tax information to make sure that all taxpayers who hold foreign financial assets will comply with the tax guidelines and rules. 

Moreover, FATCA requires non-financial foreign entities and foreign financial institutions to report the foreign assets held by the account holders in the US. Besides that, according to the legislation in the HIRE act, any U.S. person is required to report the foreign assets and foreign financial accounts. In fact, it doesn’t only affect citizens of the United States but it also involves the financial institutions offshore. These institutions need to report the accounts they have on their records owned by U.S. citizens. 

What are FFIs and NFFEs?

With the new guidelines under FATCA, the Non-Financial Foreign Entities or NFFE and the Foreign Financial Institutions or FFI will have some changes on the way they do business. The FFI includes banks and other non-financial and financial institutions. It could be the insurance companies that can give you investment opportunities with respect to the cash surrender values. 

Besides that, the law considers foreign entities as FFIs if they are in the business of security trading, investing, reinvesting, commodities, partnership interests, annuity contracts, and many others. It also includes hedge funds, mutual funds, collateralized bond funds. Private equity funds, and other similar funds. On top of that, if you have a retirement or pension plan, according to FATCA, it’s also considered as FFI. On the other hand, the absence of FFIs is where we can define NFFEs. So anything that is not NFFE is an FFI. So with respect to the FATCA withholding taxes, FFIs and NFFEs have various rules and guidelines to follow upon filing returns. 

Who is a US Person Under FATCA?

According to the guidelines, FATCA refers to USP or the United States person, and he or she can be any of the following below: 

  • A resident or citizen of the U.S.
  • Any estate other than estate abroad
  • A domestic corporation
  • A domestic partnership
  • Any trust that a court in the U.S. can supervise over the trust administration or any USP who has the authority to control the trust
  • A client who passed the Substantial Presence Test or SPT
  • The District of Columbia, a State, or the government of the U.S. 
  • Students with Q, OPT, F1, and J1 visas who are exempted from the SPT and considered as non-residents alias for 5 years
  • Teachers with Q and J1 visas who are exempted from the SPT and considered as non-residents alias for 2 years
  • Holders of L1, H1B, and other visas who meet the SPT
  • Students with J and F visas are to exclude 5 consecutive years of presence for the SPT purposes 
  • Non-student holders of J visa are also to exclude 2 years

How will this impact US Persons?

If you are a legal U.S. citizen, you have to report all of the gross income you’re earning worldwide. The taxes you paid in the country where you come from will be deducted from the taxes you have to pay in the U.S. That’s why sometimes some taxpayers don’t owe anything in the IRS but they still need to file their return on the annual basis. 

fatca compliance


As mentioned earlier, it was in 2010 when FATCA was endorsed as part of the HIRE or Hiring Incentives to Restore Employment Act. Former President Barack Obama signed HIRE to become a legal law in the country, which aims to provide business owners with incentives to hire people who are currently unemployed. It was because the unemployment rates in the country increased tremendously during the financial crisis in 2008. 

Moreover, the said incentives include the increase in expense deduction limit for purchasing new equipment in 2010 and the payroll tax benefits during holidays. Besides that, the HIRE’s incentives also include the increase of tax credits for businesses for hiring new employees who have been working for at least 52 weeks. 

What Needs to be Reported?

If you are a taxpayer in the country who has foreign financial assets with a total value of more than the reporting threshold of at least $50,000, you are required to report all of the information regarding those assets using Form 8938. Then, you have to attach that form to your federal income tax return upon filing. Besides that, there are also other forms or documents that you need to file besides Form 8938. It can be the FBAR or the Report of Foreign Bank and Financial Accounts, which is the FinCEN Form 114. 

Moreover, the reporting thresholds vary depending on various circumstances. It changes when you live offshore or you have a joint net investment income tax return. For example, if you’re residing abroad and you’re still single or you’re filing your return separately from your spouse, you have to prepare your Form 8938 if the total foreign assets you have is more than $200,000. But if you are currently living in the country, it’ll become more than $50,000. 

Then, if you’re filing your return with your spouse, the threshold will become double. Always remember that you will be considered as a person living abroad if you are a citizen of the United States but your tax home is in another country and you must be present in that particular foreign country for at least 330 days in the past 12 consecutive months. 

FATCA Reporting

As mentioned earlier, you have to report all of the assets you have worldwide when filing your return. However, when you do FATCA reporting, you need to make sure you have a complete understanding of what an asset means. So the IRS made it clear to everyone about the correct and legal definition of the word asset below: 

  • Foreign Stock Holdings
  • Foreign Financial Accounts
  • Foreign Pensions 
  • Foreign Hedge Funds 
  • Foreign Mutual Funds
  • Foreign Partnership Interests 
  • Foreign Issued Life Insurance 
  • Foreign Real Estate in a Foreign Entity (You don’t necessarily have to include the real estate in your return, but you have to report the value of the real estate and the maximum value of the foreign entity itself.) 
  • You don’t have to report your foreign home. 

Moreover, FATCA reporting includes any asset with a taxable event, like rent, real estate, royalties, insurance policies, ownership stakes, and many others. Regardless of whether the assets are held onshore or offshore, FATCA applies to any assets through FFIs by U.S. citizens. Besides that, FFIs need to report all foreign entities and financial account information to the IRS that a U.S. citizen holds. 

The institutions that will do the report are not only banks but other financial institutions as well. It can be brokers, investment entities, and various insurance companies. There are also some non-financial foreign entities that will need to report their U.S. citizen clients or asset owners. On top of that, FATCA has a set of reporting requirements that everyone needs to follow and observe upon filing the return.

FATCA Reporting Requirements Checklist

You don’t need to report your foreign financial assets on Form 8938 if you already reported them on a particular separate form. 

Form 5471 for Foreign Corporations 

Form 3520-A or Form 3520 for Foreign Trusts and Gifts

Form 8865 for Foreign Partnerships 

Form 8621 for Passive Foreign Investment Companies 

Form 8891 for Registered Canadian Retirement Savings Plans 

Moreover, to determine the aggregate gross assets for reporting threshold, you have to include the value of your foreign assets in a particular form. In addition to that, certain assets accounts for which mark-to-market elections have been made under section 475 of the Internal Revenue Code are additional exceptions from the said reporting. 

So it’s very important that you understand all of the regulatory requirements to make sure you’ve provided all the information that the IRS needs when you file for FATCA. You have to know the process of how to report efficiently and correctly whether you are a business entity or U.S. taxpayer with foreign financial assets or a foreign financial institution. 

Because of that, check this FATCA reporting requirements checklist below that you need to do upon filing your return. 

  • Determine your FATCA status. 
  • Do you have any Specified Foreign Assets?
  • Clarify whether your Specified Foreign Assets are held or used in the active conduct of the business activities or dealings of your organization. 

Foreign Institution Compliance

The FFIs and NFFEs need to comply with this particular tax law. They have to disclose the identities of the U.S. citizens and the aggregate gross assets to the IGA or the FATCA Intergovernmental Agreement or directly to the IRS. So the FFIs and NFFEs that comply with the law will report the tax identification number, address, and name of the U.S. citizens who are subject to FATCA on an annual basis. 

Moreover, the report should also include the account balance, account number, and withdrawals, and deposits on the account. However, if any of these FFIs or NFFEs failed to do their legal obligations, they will surely face a set of consequences and penalties. 

What are the Penalties for Noncompliance?

The FFIs will have a 30% deduction from the withholdable payment amount as the tax penalty if they don’t comply with the IRS and they will also be excluded from the market across the country. These withholdable payments refer to remunerations, interest, wages and salaries, dividends, profits, compensation, and other financial assets in the U.S. that are kept and held by the banks. 

Moreover, if you are subject to FATCA and you are found guilty of not complying with the tax law, the penalty will become 50% of the value of the assets for each year you failed to disclose and report all of your foreign financial assets. So if the value of the unreported accounts is over $20,000, that means the penalty is $100,000 for every year you failed to include your foreign financial assets in your return upon filing. 

However, if you don’t have enough knowledge about reporting requirements, you can file under the SFP or the Streamlined Filing Procedures. It’s a particular program of the IRS that doesn’t give late filing penalties to all innocent delinquent taxpayers. You can always take advantage of this program as long as you can prove that you did it unintentionally or willfully. 

FATCA Exemption

In 2015, ACA or the American Citizens Abroad, Inc. proposed that the U.S. Treasury Department amend the regulations of FATCA to make those U.S citizens living abroad exempted from the FATCA rules. The proposition includes the exemption from requiring the banks and other financial institutions abroad to report on the U.S. accounts of the account holders. It further states that the financial accounts of U.S. citizens residing in the foreign country should be taken out from under FATCA. The U.S. citizens should not include the account on Form 8938 if the bank will treat that as an asset owned by a non-US citizen. 

According to the ACA Executive Director, if the account in question sits in the bank in the same country, you can have a conclusion that the account is used for everyday needs and personal purposes. It can be for paying the rent, travel expenses, burying groceries, and other daily needs. That’s why this particular type of account should not be affected by FATCA. In addition, Safe Harbor Rule is another name for the same country exemption. ACA prepared the detailed description of this Safe Harbor Rule and worked with other groups representing U.S. citizens living abroad. 

Moreover, there are taxpayers who are exempt from FATCA reporting and they can choose a particular code to determine the reason for the said exemption. Always remember that there are a few factors to consider to determine if you are subject to FATCA. It includes the residency requirement, FATCA threshold, timing, and financial institution reporting. That’s why it’s still best to talk to a tax professional to make sure where your exemption status lies. 

FATCA Countries

facta form

These are some of the countries under FATCA. 


Aland Islands






Antigua And Barbuda










Cape Verde



Costa Rica


Faroe Islands






















These are some of the countries under FATCA, and you can check the official IRS website to check the complete list. 


Who is required to report under FATCA?

FATCA requires those taxpayers who have financial assets abroad with a total value of more than the reporting threshold, which is at least $50,000. Besides that, they also need to report these foreign assets using Form 8938 and attach the said form to their returns upon filing during the tax season. 

Is FATCA only for US citizens?

Yes. According to the FATCA guidelines, foreign financial institutions need to identify if their customers or clients are U.S. citizens. That’s why any U.S. citizen should provide their TIN or Tax Identification Number in the United States as part of self-certification and one of the requirements of these financial institutions. 

Who is a US person under FATCA?

The term U.S. person refers to the following (but is not limited to): 

  • An individual living in the United States, including those green card holders
  • An individual who was born in the U.S. but is a resident in a foreign country without giving up his or her U.S. citizenship
  • An individual who stays in the U.S. for a substantial number of days
  • U.S. Partnerships, U.S. Corporations, U.S. Estates, and Trusts

What is the purpose of FATCA?

The Foreign Account Tax Compliance Act is a particular tax law that requires U.S. citizens living in the United States and abroad to include their foreign account holdings when filing their tax returns. Besides that, FATCA was part of the HIRE or Hiring Incentives to Restore Employment Act, which aims to incentivize business owners to hire unemployed U.S. citizens through an increase on the expense deduction limit, payroll tax holiday benefits, and many others. 

Which countries do not comply with FATCA?

The United States of America don’t have FATCA agreements with these 95 countries below: 

  • Afghanistan
  • Albania
  • Andorra
  • Argentina
  • Bangladesh
  • Belize
  • Benin
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brunei Darussalam
  • Burkina Faso
  • Burundi
  • Cameroon
  • The Central African Republic
  • Chad
  • Comoros
  • Congo
  • Congo, Democratic Republic
  • Côte D’Ivoire
  • Cuba
  • Djibouti
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Ethiopia
  • Fiji
  • Gabon
  • The Gambia
  • Ghana
  • Guatemala
  • Guinea
  • Guinea Bissau
  • Iran
  • Jordan
  • Kenya
  • Kiribati
  • Laos
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Madagascar
  • Malawi
  • Maldives
  • Mali
  • Marshall Islands
  • Mauritania
  • Micronesia
  • Monaco
  • Mongolia
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Niger
  • Nigeria
  • North Korea
  • North Macedonia
  • Oman
  • Pakistan
  • Palau
  • Papua New Guinea
  • Russia
  • Rwanda
  • Samoa
  • São Tomé and Principe
  • Senegal
  • Sierra Leone
  • Solomon Islands
  • Somalia
  • South Sudan
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Syria
  • Tajikistan
  • Tanzania
  • Timor-Leste
  • Togo
  • Tonga
  • Tuvalu
  • Uganda
  • Uruguay
  • Vanuatu
  • Venezuela
  • Yemen
  • Zambia
  • Zimbabwe

It doesn’t mean that the United States doesn’t have agreements with these countries, the financial institutions in these jurisdictions don’t report to the IRS because some of them do. Besides that, if there are new updates on the list above, you can check the U.S. Treasury Department. 

Who is subject to FATCA withholding?

The primary subject to FATCA withholding is any U.S. citizen who has foreign financial assets. Besides that, taxpayers can be subject to FATCA if the total value of their assets is more than the reporting threshold, which is at least $50,000. Besides that, the U.S. imposes a withholding tax on a particular source of income in the country paid to entities that don’t have any FATCA participation for 30%. So you have to integrate FATCA compliance with your treasury and accounts payable to make sure that the appropriate withholding occurs. 

How do I comply with FATCA? 

How do you become FATCA compliant? It’s one of the questions that most taxpayers living in the country and abroad ask. To become FATCA compliant, you need to disclose and include all of your assets abroad in your return when filing during the tax season. Make sure that you use the correct IRS form and attach the other required documents. To ensure that you’re doing it right, consulting any tax attorney can be an immense help. 

What is the difference between FATCA and FBAR?

Anyone who has assets offshore may be subject to FBAR (Report of Foreign Bank and Financial Accounts) or FATCA (Foreign Account Tax Compliance Act).  You can be under either of these depending on the aggregate gross assets of your foreign holdings and if you meet a particular threshold. 

If you hold foreign assets that exceed $10,000, you have to report and include all of your foreign accounts in your return upon filing. But for FATCA, the threshold is $50,000 for a domestic entity at any point on or during the last day of the tax season. In addition to that, the manner of reporting and timing for FATCA is different from FBAR.

How can I avoid FATCA?

A lot of people are asking the same question. But the answer is no. There’s no way to avoid FATCA unless you’re willing to give up your U.S. citizenship. However, many U.S. citizens have given up their citizenship for the reason of avoiding FATCA. But keep in mind that if you do that it doesn’t mean the problem of paying your taxes will go away. The IRS says you’re eligible for other legal taxes you owe. 


The Foreign Account Tax Compliance Act is undeniably a concentrated effort to get rid of tax evasion in the United States. With the FATCA compliance program, you have to make sure that you have a complete understanding of how to process your forms and documents when you file for FATCA. Always remember that you will be safe if you have enough knowledge about the regulation, reporting, filing requirements, and penalties of the Foreign Account Tax Compliance Act

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