The FATCA pool is expanding every month. At the end of November 2013 two more countries joined the FATCA. The names of these countries will surprise anybody. The Cayman Islands and Costa Rica have become 11th and 12th members of the FATCA circle. The Cayman Islands FATCA and Costa Rica FATCA intergovernmental agreements have been signed with the USA to combat international tax evasion. Introduced as a part of the HIRE Act of 2010, FATCA stands for the Foreign Account Tax Compliance Act. We earlier wrote an article What is FATCA. The latest agreement was signed with France and we covered the France FATCA last week.
Summary of the Cayman Islands FATCA and Costa Rica FATCA
What is the Cayman Islands FATCA?
The Cayman Islands FATCA was signed on November 29, 2013 in London. The country was considered an offshore tax haven for a long time. The fact that the Cayman Islands signed the FATCA intergovernmental agreement shows that FATCA will not go away and more nations will sign the IGA agreements in the nearest future.
The Cayman Islands FATCA is based on Model IB agreement. Per the provisions of this IGA, foreign financial institutions of the Cayman Islands will report the information about the accounts of US persons to the Cayman Islands Tax Information Authority. Consequently the Cayman Islands Tax Information Authority will report this information to the IRS. Additionally, the Cayman Islands and the USA concluded and signed a new Tax Information Exchange Agreement that will substitute the original version signed in 2001.
“Today’s announcement marks a milestone in the effort to promote global tax transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “These agreements underscore growing international cooperation in the effort to end tax evasion everywhere.”
The Cayman Islands FATCA agreement is beneficial for the Cayman Islands financial institutions. Absent this agreement, the USA financial institutions are required to withhold 30% of payments made to the financial institutions who do not comply with the FATCA requirements.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system,” said Julie Nutter, Minister-Counselor for Economic Affairs at the U.S. Embassy in London. She signed the Cayman Islands FATCA on the behalf of the United States. “We look forward to collaborating with the Government of the Cayman Islands to further these objectives.”
What is the Costa Rica FATCA?
The Costa Rica FATCA was signed on November 26, 2013. The Costa Rica FATCA is also a Model 1A agreement. As a part of this agreement, the financial institutions of Costa Rica will report the account information of US person to the government of Costa Rica. Consequently, the Costa Rican government will provide this financial information to the IRS. On the other hand, the United States will supply the tax information about Costa Rican individuals with financial accounts in the USA to the Costa Rican government.
“Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion—an objective that mutually benefits both our countries,” said Gonzalo R. Gallegos, Chargé d’Affaires of the U.S. Embassy in Costa Rica. He signed the Costa Rica FATCA on behalf of the United States.
Conclusion
The days of offshore tax heavens are coming to end. Americans expats living abroad should take proactive steps in becoming compliant. The IRS streamlined program for American expats living abroad since 2009 is a good opportunity for low-risk taxpayers to file US expat tax returns and get back into the system. Procrastination is not a solution to the issues faced by American expats. If the IRS discovers the unreported accounts of Americans living abroad before these individuals become compliant, this fact will disqualify them from participating in the Offshore Voluntary Disclosure Program and the IRS streamlined program. American expats with additional overseas tax questions should consult an expatriate tax CPA that provides international tax services. International tax experts at Artio Partners are be pleased to assist Americans living in different parts of the world.