NRI Central
Understanding FATCA & CRS
FATCA (Foreign Account Tax Compliance Act)
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, 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 income generated from those assets. In essence, FATCA requires financial institutions to disclose information about U.S. persons maintaining accounts with them.
CRS (Common Reporting Standard)
The Common Reporting Standard (CRS) is a global 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 in a manner similar to FATCA.
Under CRS, participating countries collect financial information from their financial institutions and automatically exchange this information with other participating countries every year. Like FATCA, CRS facilitates the exchange of information regarding account holders and investors with accounts in foreign jurisdictions, helping prevent tax evasion on funds held abroad.
DID YOU KNOW?
India and the United States signed a FATCA Intergovernmental Agreement (IGA) on 9 July 2015. Under this agreement, Indian financial institutions report the required information to the Government of India, which subsequently exchanges the relevant information with the U.S. Internal Revenue Service (IRS).
India joined the Common Reporting Standard (CRS) on 3 June 2015 as both a G-20 member and an early adopter of the standard.
DISCLAIMER
This article is for informational purposes only. It provides general information and should not be considered a substitute for professional or legal advice on any specific issue. The information is subject to change, may not be complete, and should be independently verified. Applicable laws, rules, and regulations are subject to periodic revisions.