USA Congress enacted the FATCA legislation (which stands for Foreign Account Tax Compliance Act) in 2010 to mitigate tax evasion by US taxpayers directly owning unreported offshore accounts in non-US financial institutions or indirectly owning such accounts through foreign entities owned by them.

FATCA generally requires financial institutions (both US and non-US) to classify all account holders as either US or non-US, individuals or entities, which are further broken down as financial and non-financial.

  • Foreign Financial Institutions (FFIs) are asked to enter into agreements with the IRS (Internal Revenue Service – the US government agency inside the US Department of the Treasury, responsible for tax collection and tax law enforcement), in order to identify US account holders and report certain information about those accounts to the IRS on an annual basis.
  • US Financial Institutions (USFIs)) and U.S. withholding agents must also report to the IRS information about certain non-financial foreign entities (NFFEs) with substantial US owners.

To the extent that an FFI does not comply with FATCA or proves that it is otherwise exempt from those rules, a withholding agent must withhold 30.00% of certain US source payments made to the FFI. Similarly, to the extent that an NFFE does not provide the required information about its substantial US owners or proves that it does not have such owners or it is otherwise exempt from FATCA, a withholding agent must also withhold 30.00% of certain US source payments made to the NFFE.

According to FATCA provisions, the foreign financial institution must identify and obtain information regarding the account holders that can be classified as US customers based on specific criteria generically named “US indicia”. The FATCA US indicia are:

a) Identification of the account holder as a US citizen or resident; b) US place of birth/Registration; c) Current US mailing or residence address (including a US post office box); d) Current US telephone number; e) Standing instructions to transfer funds to an account maintained in the United States; f) Effective power of attorney or signatory authority granted to a person with a US address; g) A US “in-care-of” or “hold mail” address that is the sole address identified for the account holder

The Romanian authorities had concluded with the US authorities the Intergovernmental Agreement, Model IGA 1, reciprocal clause ratified by Law no. 233 dated October 8th, 2015 published in the Official Gazette of Romania no. 808/October 30th, 2015 which allows a mutual exchange of information between tax authorities of the two countries with the purpose to improve international tax compliance and to implement the US Foreign Account Tax Compliance Act (FATCA).

The agreement will enhance transparency between the two countries in the field of taxation, will promote growing cooperation in combating tax evasion practices, will simplify implementation of financial information transmission and will increase legal certainty for financial institutions in Romania.

Most of the customers will not be affected by FATCA and no action will be required. The financial institutions may still contact the customers in order to confirm the status as non-US person, if they have reason to believe they are potentially US person for FATCA purposes.

However, if a joint account opened at a financial institution has one US owner, then it is treated as a US account and therefore, the entire account is subject to the FATCA legislation.

Furthermore, FATCA represents a reporting and withholding regime that provides the US Treasury and the IRS with new tools to combat tax evasion. FATCA rules is effective as of July 1st, 2014.

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