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What is FATCA?

On 18 March 2010, US president Barack Obama signed the Foreign Account Tax Compliance Act (FATCA). The objective of the regulation is to prevent tax evasion by US residents by providing the Internal Revenue Service (IRS) with an increased ability to detect US citizens hiding assets through foreign accounts. FATCA will affect nearly 150,000 financial intermediaries worldwide: in addition to banks, investment and asset management companies, brokerage and insurance institutions will also be subject to the withholding tax. A 30% U.S. withholding tax will apply to US-source income (e.g. dividends, interest, royalties, rental fees) defined by the new regulation from sources within the US paid to any Foreign Financial Institution (FFI) unless the FFI has entered into an FFI Agreement with the IRS committing the FFI to certain verification, due diligence, withholding and reporting obligations, or the resident country of a financial institution may sing an Intergovernment Agreement with the USA, therefore the institution shall comply with the FATCA rules adopted in the local regulations.