The Foreign Account Tax Compliance Act (FATCA) is a U.S. regulation designed to combat tax evasion by identifying U.S. citizens who hold financial accounts abroad. Enacted in 2010, FATCA requires foreign financial institutions to report information about their U.S. clients’ accounts to the Internal Revenue Service (IRS). This means that if you are a remote worker or an investor operating from Latin America, it is essential to understand how this law may affect you and what your obligations are.
How does FATCA work?
The implementation of FATCA is based on an information-exchange system. Financial institutions outside the United States must identify account holders who are U.S. citizens or residents and report their account balances and the interest earned to the IRS. This includes not only bank accounts, but also investment accounts. If an institution fails to comply with these requirements, it may be subject to a 30% withholding tax on certain U.S.-source payments.
What information is shared?
It is important to understand that the exchange is neither total nor automatic for all transactions. Instead, it focuses on specific profiles and types of income. Under the technical agreement, the United States will send information to Argentina regarding so-called “Reportable Accounts” that meet the following criteria:
- For individuals: Deposit accounts are reported if the account holder is a resident of Argentina and more than USD 10 in U.S.-source interest was paid during the calendar year.
- For other financial accounts (investment assets): If the account holder is a resident of Argentina (either an individual or an entity), U.S.-source income—such as dividends—subject to reporting under the U.S. Internal Revenue Code (Chapters 3 and 61) will be reported.
If an account qualifies as reportable, the information exchanged includes:
- Personal data: Name, address, and the Argentine tax identification number (CUIT/CUIL) of the account holder.
- Account details: Account number and the name of the U.S. financial institution.
- Financial data: The gross amount of interest, dividends, or other U.S.-source income credited to the account.
What about fintechs and FATCA? Are they included in the reporting?
One of the most common questions concerns digital platforms or neobanks (such as Payoneer or Wise). The agreement defines U.S. Financial Institutions broadly.
In practical terms, if the financial service you use operates through a U.S. custodian bank or is registered as a financial institution with U.S. regulators, it falls under the same rules as a traditional bank. There is no legal distinction that excludes fintechs if they act as custodians of funds within the United States.
When did FATCA take effect?
Although the agreement was signed at the end of 2022, technical implementation and data flows take time. The framework originally targeted information generated from the 2023 tax year onward. This means that actual reporting began to be processed in September 2024, in line with the requirements of both countries.
The agreement primarily seeks to identify passive income (interest and dividends) above minimum thresholds. For users who rely on these accounts to receive payments for services or manage savings, the key remains the same: maintain proper tax planning and stay informed about current regulations.
Obligations for financial institutions
Foreign financial institutions must:
- Register and classify their clients to determine whether they are U.S. persons.
- Report information on accounts that exceed certain monetary thresholds.
- Withhold taxes if they fail to comply with FATCA requirements.
What are the benefits of FATCA?
While FATCA can appear daunting, it also brings several benefits, particularly for U.S. taxpayers and global investors.
Increased Transparency
FATCA promotes transparency in the financial system, making it more difficult for individuals to hide assets overseas. This increased visibility can help restore trust in the financial markets and ensure that all taxpayers contribute fairly.
Enhanced Compliance
For U.S. citizens abroad, understanding FATCA leads to better compliance with tax obligations. This reduces the risk of penalties and fines for failing to report foreign accounts and assets accurately.
Access to Global Financial Services
Financial institutions that comply with FATCA can provide services to U.S. taxpayers without the risk of heavy penalties. This access allows for smoother banking and investment opportunities across borders, which is particularly beneficial for remote workers and digital nomads.
Conclusion
In summary, FATCA is a critical piece of legislation that impacts U.S. taxpayers and foreign financial institutions alike. By understanding FATCA, individuals can navigate the complexities of international finance more effectively. At Wallbit, we are committed to helping our users stay informed and compliant with regulations like FATCA, ensuring that you can manage your investments and savings without unnecessary hurdles. Open your global account with us today and take the next step towards financial freedom!
