FATCA REPORTING: Best Practices and Requirements (Updated 2023)


The Foreign Account Tax Compliance Act (FATCA) or FATCA Reporting is a significant step forward in the United States’ attempts to prevent tax evasion by Americans with accounts and other financial holdings in foreign countries. Individuals with entire assets beyond a specific threshold are required to file FATCA tax returns.

Certain U.S. taxpayers with financial assets outside of the United States are required to report those assets to the IRS on Form 8938: Statement of Specified Foreign Financial Assets under FATCA. If these financial assets are not reported, serious fines apply.

This FATCA mandate is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FinCEN) (formerly TD F 90-22.1).

FATCA also compels certain foreign financial institutions to submit directly to the IRS information on financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers possess a major ownership interest. Other financial organizations, such as investment entities, brokers, and certain insurance companies, are among the reporting institutions. Certain non-financial foreign organizations are also required to report certain U.S. owners.

Read on to learn about FATCA reporting best practices, requirements, and all you need to know.

What is FATCA Reporting?

Any asset having a taxable event, such as royalties, rent, real estate, insurance policies, and ownership positions, is subject to FATCA reporting. It covers assets held by US citizens through FFIs, whether they are held inside or outside the US.

All information about bank accounts and foreign businesses in which U.S. taxpayers have a considerable stake must be reported immediately to the IRS by FFIs.

FATCA imposes broad duties on all impacted organizations to screen and identify, do due diligence on, and process transactions in this capacity.

FFIs that are revealed to have been dodging FATCA may face a punitive tax of up to 30% on all U.S. investment flows, regardless of whether the assets are held by individuals or corporations.

Also read: Project management reporting

FATCA reporting requirements 

If you’re starting the FATCA filing process, it’s critical to understand the regulatory requirements so that the IRS has all of the information it needs.

The FATCA reporting requirements are shown below:

  • Any foreign financial account. This might be bank accounts, brokerage accounts, financial accounts, mutual funds or hedge funds. 
  • Foreign stock or security issued by a foreign person not held in a foreign account; for example, if you had an ownership interest in a foreign entity. 
  •  Any interest in a foreign entity not held in a FIFA account. 
  •  Foreign life insurance policy with a cash value not held in a FIFA account. 
  •  Any foreign instrument or contract held for investment that lists a foreign person as a counterparty. 

FATCA reporting best practices

FATCA standards and compliance, as well as reporting regimes around the world, are continually changing. As a result, staying current with FATCA and developing a reporting template that ensures continuing compliance is even more important. Using a FATCA reporting template will help you streamline and simplify your FATCA reporting. It’s critical that your business succeeds.

Failure to comply with FATCA can result in significant fines and penalties, as well as damage to one’s image. It’s considerably easier to comply with FATCA and stay compliant than it is to deal with audits, penalties, and fines.

A FATCA reporting template should include the following seven items:

#1. Tax documentation

Mechanisms must be created whereby your organization collects tax documentation for both U.S. and foreign subsidiaries and suppliers. In addition to Form W-9, forms in the W-8 series may apply. It’s much easier to gather tax documentation in advance than it is to do so during tax season. Moreover, suppliers and entities must ensure that all of their documentation is up to date.

#2. FATCA classification

U.S. entities, foreign financial institutions, and non-financial foreign entities must all be classified into one of three categories. There are other types of non-financial foreign companies, such as active, passive, and publicly traded firms (and their affiliates). Unless an exemption exists, non-financial foreign entities must present appropriate, valid evidence concerning U.S. owners with substantial interest.

#3. Withholding

The United States withholds 30% of some U.S. source income sent to entities that do not participate in FATCA or do not have the necessary documents. In order to comply with FATCA, you must track tax documentation, follow up, and withhold the proper amounts.

#4. Reporting on certain U.S. source income paid to non-U.S. persons

FATCA reporting is essential in terms of compliance. To ensure accurate and timely reporting, tax documentation and withholding must be completed appropriately.

#5. Common Reporting Standard (CRS)

The CRS is an OECD standard that requires financial institutions to gather and analyze information and documents from financial account holders before reporting to local tax authorities.CRS is a global reporting standard that allows financial institutions, governments, and businesses to share information about their financial holdings.

#6. Multinational compliance

Because FATCA and CRS overlap, multinational firms and their subsidiaries can improve their tax reporting compliance. It’s critical to maintain consistency in your FATCA and CRS compliance across subsidiaries and jurisdictions.

#7. Creating an audit trail

Creating an audit record of compliance activities is crucial to ensuring that you are fully compliant with FATCA.

Foreign Institution Compliance with FATCA

Non-U.S. foreign financial institutions (FFI) and non-financial foreign entities (NFFE) must also comply with the law by providing to the IRS or the FATCA Intergovernmental Agreement the identities of U.S. individuals and the value of their assets stored in their banks (IGA).

What is a FATCA reporting code?

A participating foreign financial institution is required by the Foreign Account Tax Compliance Act (FATCA) to report all United States account holders who are specified United States individuals. Certain payees are exempt from FATCA reporting, and they must choose a code to indicate why they are exempt.

Exemption from FATCA Reporting Code

Certain payees are excluded from FATCA reporting and can choose a FATCA code, which is a reporting number that identifies the rationale for their exemption. The reporting thresholds for FACTA are determined by two factors: your tax filing status and your location.

Reporting thresholds will alter depending on whether the annual income tax return is submitted jointly or separately.

When the reporting threshold is reached, reporting becomes mandatory. Individuals filing with any status other than married, joint filing have a $50,000 reporting threshold if they live in the United States, and a $200,000 reporting requirement if they live outside of the United States.

When married, the thresholds are doubled, requiring $100,000 in specified foreign assets for U.S. citizens living in the United States and $400,000 for those living outside of the United States when filing jointly.


Individual FATCA reporting regulations are complicated. We hope that the following information helps you comprehend the FATCA requirements and Form 8938 in general. We recognize that each person’s circumstance is unique and that only a qualified tax professional can ensure that all requirements are met and that the form is correctly filled out and completed on time.

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What does FATCA mean?

The Foreign Account Tax Compliance Act (FATCA) is an acronym for the Foreign Account Tax Compliance Act, a new set of US tax regulations enacted by the US government to deter tax evasion by US citizens (IRS)

What is a FATCA reporting code?

A participating foreign financial institution is required by the Foreign Account Tax Compliance Act (FATCA) to report all United States account holders who are specified United States individuals. Certain payees are exempt from FATCA reporting, and they must choose a code to indicate why they are exempt.

How effective is FATCA?

There is no official measure of how effective FATCA has been at increasing foreign tax compliance; nonetheless, based on certain assumptions about the impact of third-party reporting on compliance rates, FATCA is likely to result in higher compliance rates.

How do I check my FATCA status online?

With the help of Karvy KRA, you can also check your FATCA declaration status. You must input your PAN card number to find out your FATCA status. The result will display a favorable response if you have a FATCA declaration registered. By clicking the link on the page, you can also access or modify your FATCA information.

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