Want To set up a company in India — Overview
An understanding of the Foreign Account Tax Compliance Act (FATCA)
By Nagavarapu Bhavya Akshaya
The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law designed to combat tax evasion by American taxpayers holding assets in foreign accounts. Enacted in 2010, the law requires both U.S. taxpayers and foreign financial institutions (FFIs) to report on foreign financial accounts and assets.
Requirements for foreign financial institutions (FFIs)
To avoid a 30% withholding tax on certain U.S.-source payments, FFIs must report to the Internal Revenue Service (IRS) on the financial accounts of U.S. persons. This reporting is accomplished in one of two ways:
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Direct registration: An FFI can directly register with the IRS to report information on its U.S. accounts.
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Intergovernmental Agreements (IGAs): Many countries have signed IGAs with the U.S.. Under an IGA, an FFI reports the information to its local tax authority, which then transmits the data to the IRS.
Requirements for U.S. taxpayers
U.S. citizens and residents must annually report their foreign financial accounts and assets to the IRS if the total value exceeds a certain threshold. This is done using Form 8938, Statement of Specified Foreign Financial Assets.
It is important to note that FATCA reporting is separate from, and does not replace, the requirement to file a Report of Foreign Bank and Financial Accounts (FBAR).
How FATCA works in practice
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Account identification: When opening an account, FFIs must perform due diligence to identify account holders who are U.S. persons. Many institutions ask new customers to complete a FATCA self-certification form.
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Data reporting: If an FFI identifies a U.S. person, it must report specific information to the relevant tax authorities. This information includes:
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Name, address, and taxpayer identification number (TIN)
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Account number
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Account balance or value
FATCA enforces strict penalties for both FFIs and individual taxpayers who fail to comply. For FFIs, non-compliance can result in a 30% withholding on certain U.S.-source income. For individuals, penalties can include monetary fines for failure to file Form 8938 and failure to pay.
Consult with A2consultants to explore our indepth knowledge and insight on FATCA
For detailed insights and practical guidance, visit our Knowledge Center and access our curated guides on India market entry: https://www.a2consultants.in/guides/international-taxation-in-india-for-foreign-companies
About the Author – Nagavarapu Bhavya Akshaya
Nagavarapu Bhavya Akshaya is a CA Final and CMA Final student and an All India Rank holder (AIR 31). With a strong academic foundation in accounting, taxation, and corporate laws, she brings a structured and analytical perspective to complex financial and regulatory topics. Her work focuses on simplifying technical subjects for professionals and businesses, with a special interest in international taxation, corporate structuring, and compliance advisory.
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