What the Foreign Account Tax Compliance Act is
The Foreign Account Tax Compliance Act (FATCA) is specific United States (US) legislation that aims to reduce tax evasion by US citizens, tax residents and entities. US citizens and tax residents are required to report their worldwide income to the Internal Revenue Service (IRS) whether they live in the US or not.
Who FATCA applies to
FATCA is a reporting regime that ensures US persons (and New Zealanders with accounts in the US) meet their tax obligations. It requires all foreign financial institutions that are not exempt, including New Zealand financial institutions (NZFIs), to register with the IRS. They must report on US citizens and tax residents who have specified foreign financial assets that exceed certain thresholds.
Unless the US exempts them from FATCA reporting, this includes foreign financial institutions such as:
- insurance companies
- custodial institutions
- hedge funds
- mutual funds
- superannuation funds
- private equity firms.
These financial institutions are required to report on details of financial accounts held by:
- US citizens
- US tax residents
- US entities that are specified US persons
- certain non-US entities that are controlled by US tax residents or US citizens
- certain 'non-participating' financial institutions.
New Zealand has entered into a FATCA Intergovernmental Agreement with the United States under which New Zealand financial institutions are required to provide specified identity and financial information about such accounts to Inland Revenue, which will then be provided to the United States under the double tax agreement (DTA) that New Zealand has with the United States.
The FATCA IGA is also reciprocal in nature. New Zealand will receive information from the United States - pursuant to the New Zealand/United States DTA - about financial accounts held by New Zealand tax residents with United States financial institutions.
FATCA doesn't change any basic tax rights that the United States or New Zealand has in respect of its citizens or residents. Nor does it require us to act as a tax collection agent for the United States Internal Revenue Service.
Instead, FATCA is a reporting regime to ensure that US persons (and New Zealanders with accounts in the US) meet their tax obligations.
US citizens or tax residents concerned about complying with any US or New Zealand tax laws that might apply to them, should contact a trusted tax advisor to advise them of their tax obligations.