Understanding the FATCA & CRS

FATCA

The Foreign Account Tax Compliance Act (FATCA) is a tax information reporting system. It mandates that financial institutions identify and report details of their U.S. account holders. This is accomplished through enhanced due diligence and periodic reporting, either directly to the U.S. Internal Revenue Service (IRS) or, in cases where an Intergovernmental Agreement (IGA) exists, to the appropriate local government authority.

FATCA's primary objective is to prevent U.S. individuals from using offshore accounts at foreign banks and financial institutions to evade U.S. taxes on the income generated from those assets. In essence, FATCA compels financial institutions to disclose information about U.S. persons holding accounts with them.

CRS

The Common Reporting Standard (CRS) is a worldwide standard for the automatic exchange of financial account information. Developed by the G-20 countries and the Organisation for Economic Co-operation and Development (OECD), it functions similarly to FATCA.

Under the CRS, participating countries collect financial information from their financial institutions and automatically exchange this information with other participating countries annually. Like FATCA, the CRS aims to facilitate the exchange of information between countries regarding account holders and investors with accounts in foreign jurisdictions, thereby preventing tax evasion on funds held abroad.