What is FATCA?

How it works

FATCA was enacted in 2010 as part of the HIRE Act and went live progressively from 2014. The mechanism is unilateral: the US imposes reporting obligations on foreign financial institutions (FFIs) worldwide, backed by the threat of 30% punitive withholding on the FFI's US-source income if it refuses to comply.

FFIs include banks, brokers, custodians, fund vehicles, insurance companies — essentially any non-US institution holding financial accounts. Each FFI must:

1. Identify US account holders — citizens, green-card holders, residents (under SPT), and entities with substantial US ownership.
2. Report annually to the IRS via Form 8966 (or local equivalent under IGA): account holder identity, US TIN, account number, year-end balance, gross interest / dividends / proceeds.
3. Register with the IRS to obtain a Global Intermediary Identification Number (GIIN).
4. Apply 30% FATCA withholding to "withholdable payments" made to non-compliant FFIs or to US persons who fail to provide a valid W-9.

IGA framework

Direct IRS reporting was politically untenable for many countries. The IRS responded by negotiating Intergovernmental Agreements (IGAs) with most major economies:

• Model 1 IGA: FFIs report to their local tax authority, who forwards to the IRS. Most common (UK, France, Germany, Italy, Spain, Brazil, etc.).
• Model 2 IGA: FFIs report directly to the IRS with consent flagging. Switzerland, Japan, etc.

Over 110 jurisdictions have IGAs in force.

Who is a "US person" under FATCA

• US citizens — including dual nationals, regardless of where they live.
• Green-card holders — even if living abroad indefinitely.
• US tax residents under the Substantial Presence Test.
• Domestic US entities — corporations, LLCs, partnerships formed in the US.
• Foreign entities with substantial US ownership (10%+ in some categories, with lookthrough).

Forms involved

• W-9 (Form W-9) — US persons confirm US status + TIN.
• W-8BEN (Form W-8BEN) — non-US individuals certify foreign status.
• W-8BEN-E — non-US entities certify foreign status + FATCA classification.
• Form 8938 — US persons report foreign financial assets above thresholds (separate from FBAR).

FATCA vs CRS

A US citizen living in France triggers both: French banks report under FATCA (US-France IGA) AND under CRS (France matching with French tax authority).

Examples

• US citizen with a Swiss UBS account. UBS identifies him as a US person via passport. Reports the account annually to the Swiss tax authority (Model 2 IGA), which forwards to the IRS. Same data also fed back via CRS to other CRS jurisdictions where he's tax resident.
• French founder's Wyoming LLC at Mercury. Mercury asks for tax certification. Owner files W-8BEN in his name (LLC is disregarded). LLC is properly classed as foreign-owned for FATCA purposes; no 1099-K issued to the LLC by Stripe.

Common mistakes

• Filing W-9 for a non-resident-owned LLC. Wrong — single-member LLC takes the owner's tax personality. Foreign owner → W-8BEN. The most expensive FATCA paperwork mistake for cross-border founders.
• Forgetting Form 8938. US persons abroad with substantial foreign financial assets must file Form 8938 with their 1040 (separate from FBAR). Penalties similar to FBAR.
• Assuming FATCA is dead. Despite political turbulence (occasional US repeal threats), FATCA remains in force through 2026 and beyond.
• Ignoring the IGA framework. Many practitioners reference "FATCA reporting" as if direct to the IRS — in most countries it's IGA-mediated through local tax authorities.