Compliance
FATCA
Also known as Foreign Account Tax Compliance Act
FATCA is a United States law requiring foreign financial institutions to identify accounts held by US persons and report them to the IRS, generally through an intergovernmental agreement with their own government, backed by a 30% withholding penalty on institutions that do not comply.
In plain terms: Banks outside the US have to tell the IRS about their American customers, or lose a chunk of their US income.
Why it matters
FATCA identifies people by citizenship rather than residence, because the United States taxes its citizens wherever they live. It is the reason a US place of birth on a passport generates paperwork at every account opening for the rest of a person's life, regardless of their current nationality.
Common misunderstanding
Assuming FATCA is the same thing as the Common Reporting Standard. FATCA is unilateral, US-specific and citizenship-based; the Common Reporting Standard is multilateral and residence-based. Most people outside the US are within the second and not the first.
Read the full guideWhat your bank reports about youRelated terms
Source: IRS — Foreign Account Tax Compliance Act. This is a definition, not tax or legal advice — verify against the primary source before acting.