What Is FATCA?
FATCA stands for Foreign Account Taxation Compliance Act. FATCA is a controversial information-sharing agreement, created via a 2010 US federal law, between the United States and more than 100 countries. The stated goal of FATCA was to identify non-US financial accounts opened by US citizens or businesses for the purpose of avoiding US taxes—for instance, in tax havens, tax-free countries, or countries with lower corporate tax rates—which would enable the IRS to then collect the taxes owed.
However, FATCA can also create financial complications for US citizens living abroad. For instance, some foreign banks simply refuse to issue accounts to US citizens so as to avoid any FATCA entanglements. Additionally, both the implementation and the legality of the agreement have been called into question.
What Is the Difference Between a FATCA Model 1 Country and a Model 2 Country?
In general, the countries that are included in FATCA have entered into either a Model 1 or Model 2 agreement. In a Model 1 country, financial data about United States citizens is collected by the partner country's various financial institutions and sent to that country's governmental tax authority. That authority then passes the information on to the US IRS, which uses it to ensure the person is paying the amount of tax they legally owe. A total of 94 countries fall under the Model 1 agreement.
In a Model 2 country, the partner government's tax authority is removed from the transfer chain and information is passed directly from the country's financial institutions to the US IRS. 14 countries have entered into a Model 2 agreement. Both models also include variants in which the US would reciprocate by providing similar information about any of the partner country's citizens residing in the US.
What Countries Are FATCA Model 1 Countries?
*Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.
What Countries Are Model 2 Countries?*
Armenia | Iraq** | Paraguay** |
Austria | Japan | San Marino |
Bermuda | Macao | Switzerland |
Chile** | Moldova | Taiwan** |
Hong Kong | Nicaragua** |
*Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.