You and your US tax obligations
The Foreign Account Tax Compliance Act, or FATCA, is United States law. It aims to reduce tax evasion by US persons using financial accounts outside the United States of America.
It does so by requiring participating financial institutions around the world, including New Zealand banks, to provide relevant information about customers who are US persons.
New Zealand has introduced law requiring banks to provide information about those customers to Inland Revenue, which then passes it on to the US Internal Revenue Service.
Who is affected by FATCA?
FATCA affects US persons who have financial accounts outside the United States. US persons include:
- US citizens, including those resident outside the United States
- US permanent residents, including green card holders
- People born outside the United States of a US parent
- US tax residents
- Certain persons who spend a significant number of days in the United States each year
- US corporations, estates and trusts, and other entities controlled by US persons.
How might it affect you?
Banks need to review new and existing customer accounts to look for any indication that a customer may be considered a US person.
Reportable accounts of US persons include ordinary bank accounts and other arrangements that may carry a positive credit balance, including for example some credit cards and loans.
The only information about affected customers that is reported is their name, address, account numbers, US tax identification number (or date of birth if no US tax number), account balances, and interest payments.
Personal information about non-US persons will not be reported (except where they do not provide information requested in relation to FATCA). Where someone has self certified they are not a US person, and has a joint account with a US person, only information about the US person will be reported.
When did it come into force?
FATCA was phased in between July 2014 and June 2016. Banks had different verification time frames for new and existing customers.
What do you need to do?
The United States requires its citizens and residents to file annual tax returns regardless of where they live or how long they’ve lived there.
Your bank may ask you to self-certify whether or not you are a US person by asking you questions about your citizenship or tax residency status, or requesting additional documentation. If you choose not to provide this information your bank may be required to treat your account as reportable and send your account information to Inland Revenue, which will share it with the Internal Revenue Service.
You may wish to seek independent tax or legal advice if you are unsure of your US tax status or whether you may have an obligation to file tax returns in the US.
How does FATCA work?
If financial institutions do not comply with FATCA they may be penalised by a 30% withholding tax on principal and income from investments in the United States. The US capital markets provide much of the funding most banks need to lend to New Zealand households and businesses. If those funding sources were no longer available due to non-compliance there would be a significant impact on the New Zealand economy.
To make FATCA work, New Zealand needed to enter into an intergovernmental agreement with the United States and to amend the Tax Administration Act 1994. The amendment requires all financial institutions, regardless of whether they have investments in the United States, to collect information to determine whether a customer is a US person and to disclose FATCA reportable customer information to Inland Revenue. Under the agreement Inland Revenue collates the New Zealand information and passes it on to the Internal Revenue Service.
The New Zealand approach is not unique. We are following many other countries that have also negotiated an intergovernmental agreement with the United States, including Australia, the United Kingdom, France, Germany and Japan.
Participating in FATCA allows New Zealand banks to continue to provide products and services to US persons.
How can you find out more?
Background information is available from Inland Revenue.