FATCA & your investments

If you have made any investment in a fixed deposit or a mutual fund or even in shares, by now, you must have received a form in the mail requiring you to comply with FATCA regulations. What is this new compliance requirement exactly and what does it mean so far as your investments are concerned?

Every government across the length and breadth of the globe desires to catch hold of money flowing out of their country specifically for avoiding taxes. With this aim, India has signed an Inter-Governmental Agreement with the USA under their Foreign Account Tax Compliance Act (FATCA) effective from 1.9.15.

Consequently, many ‘reportable’ persons in both the countries have started receiving inquiries related with their assets and income causing some anxiety. This is an attempt to give such persons the most desired related information.

In other words, this entire FATCA issue is applicable to you only if you are a tax resident or otherwise taxable in the USA. If not, then you just have to tick the NO box in the form and send it to the agency concerned and that would be the end of the story. However, those who are under the tax jurisdiction of the USA, please read on.

FATCA Details —

• A reportable person means an individual who is i) a citizen or resident of USA ii) US entity such as a partnership or corporation organised in the USA, US trusts etc., and iii) a person that is resident of any country outside India under the tax laws of such country other than prescribed entities.
• For individuals, the threshold on Pre-Existing US Reportable Accounts (before the above dates) is US$ 50,000 whereas there is no threshold for other reportable accounts. For all the entities, US or others, the threshold is US$250,000.
• High value accounts are those which are over US$ 1 million.

What Needs to be Reported:

• The name, address, taxpayer identification number (assigned to the account holder by the country of his residence for tax purposes) and date and place of birth (in the case of an individual) of each reportable person.
• The account number and balance.

Reporting Deadlines

• The information relating to 2014 needs to be reported by 10th September, 2015.
• The information related to calendar year 2015 needs to be reported for only US reportable accounts and the statement should be furnished by 31st May, 2016.

Consequences of FATCA

A more immediate consequence of FATCA would be that currently all people who are tax resident of the US or otherwise taxable in the US would redeem / sell their investments in off shore locations (including in India) – just so that they don’t get trapped in the long tentacled arms of FATCA. In fact this is one of the reasons that the markets are taking time to recover – the much needed liquidity in terms of infusion of funds for a rise in valuations is just not coming – not only because of a slump in global demand but also on account of draconian regulations such as FATCA. It is hoped that the US leadership takes note of such unintended consequences and takes necessary actions.