Introduction to the United States tax compliance act of foreign accounts

4 min.

1. What is FATCA?

The Foreign Account Tax Compliance Act is a U.S. tax law that was enacted in 2010 –

Final U.S. Treasury regulations on FATCA were issued on January 17, 2013. The regulations launched on July 1, 2014, and came into effect from 2014 to 2017. It aims to prevent U.S. tax evasion by U.S. persons through use of offshore accounts held at Foreign Financial Institutions (“FFIs”) and Non-Financial Foreign Entities (“NFFEs”). The U.S. Internal Revenue Service (“IRS”) and the U.S. Congress believe that many U.S. citizens are evading U.S. taxes by hiding their assets overseas.

“Withholdable payments” generally include any payments of (i) U.S.-source interest, dividends, rents, salaries, wages, pre­miums, annuities, (ii) and other fixed or determinable annual or periodic (“FDAP”) income.

The range of FDAP income is wide, almost including all the income except such from sale or other disposition of property that can produce U.S.-source interest or dividends

The “payee” of any such withholdable payment is usually the entity receiving the withholdable payment unless an exception applies under the Proposed Regulations (generally related to specific situations in which the withholding agent treats the FFI or NFFE as an interme­diary). Once the withholding agent has determined (i) that they are making a withholdable payment, (ii) the appropriate payee of that withholdable payment, the withholding agent must collect documentation with respect to such payee, regardless of whether the appropriate payee is the recipient FFI or NFFE or another person. In the event a withholding agent gen­erally must withhold 30 percent of withholdable payments if the withholding agent has not received documentation showing that the payee has complied with their FATCA reporting and diligence requirements

2. How do I know if I am affected?

FATCA legislation will affect both personal and business customers who are treated as a ‘US Person’ for US tax purposes. The FATCA legislation will also affect certain types of businesses with US owners.

The term US person includes the following (but is not limited to):

    • A citizen of the US, including an individual born in the US but resident in another country (who has not given up their US citizenship)
    • A person residing in the US, including US green card holders
    • Certain persons who spend a significant number of days in the US each year

US Corporations, US Partnerships, US estates and US trusts

3. Am I only affected if I am a citizen of the US?

No. If an individual’s account holds any of the following seven criteria, the bank may request further information / documentation to determine if you are a US Person under FATCA.

  • US citizenship or US residence
  • US place of birth
  • US address including US PO boxes
  • US telephone number
  • Repeating payment instructions to pay amounts to a US address or an account maintained in the US
  • Current Power of Attorney or signatory authority granted to a person with a US address
  • In care of or hold mail address which is the sole address for the account holder

4. Which form should be prepared for non-financial Chinese entities?

For passive non-financial Chinese entities, if any of the shareholders is a citizen of the US, they will be asked to complete various information requested by the U.S. Department of the Treasury Form W8 “Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) in respect of your business”. The bank may also ask the entity to provide certain information according to the bank’s judgment. The W8 forms have been changed with the implementation of FATCA. The W8BEN-E requires a business or other organization to self-identify into one of approximately 30 categories of organization under FATCA. Non-financial Chinese entities will be required to fill W8 BENE, which also applies to financial Chinese entities. The Chinese entities mentioned below should fill out further W8 form types:

Non-financial Chinese entities typeW8 form type
Chinese entities who claim the revenue is connected with the trade or commercial activity in U.S.


Partnership, Trust, Agency


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Contact person

Lawyer in Heidelberg, Richard Hoffmann
Richard Hoffmann
Lawyer in Heidelberg
Phone: +49 6221 9985 639