FATCA

What is FATCA? 

The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law that requires foreign financial institutions and certain non-financial foreign entities to report information on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. 

FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, a law aimed at increasing transparency in the global financial system. The HIRE Act also introduced reporting obligations for U.S. taxpayers, requiring them to disclose foreign financial accounts and assets, depending on their value. 
 

Who is required to report under FATCA? 

FATCA imposes reporting obligations on the following parties: 

• U.S. taxpayers (individuals and certain domestic entities) who hold foreign financial assets exceeding specific thresholds must report them annually to the IRS using  Form 8938, attached to their income tax return. 
• Foreign financial institutions (FFIs), including banks, investment entities, brokers, and certain insurance companies, must report information about: 
  • Accounts held by U.S. persons, and 
  • Foreign entities with substantial U.S. ownership. 
• Non-financial foreign entities (NFFEs) may also be required to report information about their substantial U.S. owners. 
• Withholding agents must report and may be required to withhold 30% on certain U.S.-sourced payments if FATCA documentation is incomplete or missing.

FATCA obligations for financial institutions 

FATCA defines FFIs broadly to include banks, custodians, investment funds and asset managers, insurance companies with cash value products, and other entities engaged in financial services. To fulfil FATCA reporting requirements, these institutions must: 

• Register with the Internal Revenue Service (IRS) and obtain a Global Intermediary Identification Number (GIIN). 
• Identify U.S. account holders through due diligence procedures. 
• Report account information (e.g., balances, income, ownership) either directly to the IRS or via local tax authorities under an Intergovernmental Agreement (IGA). 
• Withhold 30% tax on certain U.S.-sourced payments to non-compliant account holders or institutions. 

Reporting is conducted annually through the International Data Exchange Service (IDES) or local authorities, depending on the jurisdiction’s IGA model.
 

Which countries follow FATCA? 

Currently, over 100 jurisdictions globally have signed Intergovernmental Agreements (IGAs) with the United States to facilitate FATCA compliance. These agreements fall into two categories: 

• Model 1 IGA: FFIs report to their national tax authority, which then transmits the data to the IRS. This model is the most common and includes countries such as Australia, Germany, France, Japan, United Kingdom, among others. 
• Model 2 IGA: FFIs report directly to the IRS, with oversight from the local government. This model includes jurisdictions such as Switzerland, Austria, Armenia, among others. 

These agreements help resolve conflicts with local privacy laws and streamline compliance for institutions operating in partner jurisdictions.
 

Does FATCA apply to accounts and assets in Switzerland? 

Yes. Switzerland enforces FATCA through a bilateral agreement with the United States. Initially, it adopted a Model 2 IGA, allowing Swiss financial institutions to report directly to the IRS with account holder consent. If consent is withheld, anonymized data is submitted, and the IRS may request specific details through formal channels. 

The Swiss Federal Council has initiated a consultation process aimed at enhancing the FATCA framework. The proposed changes would allow for reciprocal exchange of financial account information between Switzerland and the United States, aligning FATCA more closely with Switzerland’s broader commitments under the Automatic Exchange of Information (AEOI) standard. While the current model remains in place, these developments reflect Switzerland’s ongoing efforts to strengthen international tax cooperation.

What is FATCA in the UK? 

The United Kingdom implements FATCA through a Model 1 IGA with the United States. Under this agreement, UK financial institutions report information on U.S. account holders to HM Revenue & Customs (HMRC), which then forwards the data to the IRS. This arrangement simplifies compliance by enabling local reporting and ensures consistency with UK data protection laws.  

Financial institutions—including banks, investment firms, and insurers—must register with the IRS, obtain a Global Intermediary Identification Number (GIIN), and comply with due diligence and reporting obligations as outlined in UK regulations. FATCA is fully operational in the UK. HMRC provides detailed guidance and regulatory updates to support institutions in meeting their ongoing compliance responsibilities.

Is FATCA enforced in Hong Kong? 

Yes. Hong Kong signed a Model 2 IGA with the United States to comply with FATCA, requiring financial institutions to report U.S. account holders directly to the IRS with client consent. Institutions are required to register with the IRS, conduct due diligence, and submit annual reports starting in 2015. The agreement aims to enhance transparency and combat offshore tax evasion. 

Although Hong Kong does not have a bilateral tax treaty with the U.S., the FATCA agreement supports global financial transparency and includes confidentiality safeguards. U.S. taxpayers must report Hong Kong accounts, and non-compliant institutions may face penalties, including withholding taxes on U.S.-sourced payments.