With increasing number of people from multiple countries investing in India, there is a need to have a system that could track all such financial transactions in a transparent manner. In order to enable an automatic and seamless exchange of financial data between countries, India has entered into an Inter-Governmental Agreement with the US.
As per this agreement, every Indian investor needs to provide an additional KYC and compliance form, apart from the regular KYC information, at the time of operating any financial or investment account.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a piece of US tax regulation that aims to combat tax evasion by US persons opening accounts offshore. FATCA became effective July 1, 2014. It enhances due diligence and information reporting requirements for both individual and entity accounts. On 9 July 2015, India signed Model 1 Inter-Governmental Agreement (IGA) with the US IRS for implementation of FATCA.
What are the objectives of FATCA?
FATCA aims to detect and discourage offshore tax evasion by U.S. citizens or U.S. residents by requiring financial institutions to identify and report accounts held by U.S. persons. Where account holders refuse to be identified, financial institutions are required to report them based on information available.
What is the impact of FATCA?
Impact on financial institutions: Financial Institutions are required to have an in-depth knowledge of account holders and detail reporting requirements.
Impact on account holders:
Additional disclosure requirements.
The form, style, design, requirements may be different in FATCA/CRS declarations of different financial institutions/intermediaries. However, the common required information includes:
Name and Permanent Account Number (PAN)
Type of address in KYC
Place (city/state) of birth, Country of birth and Nationality
Gross Annual Income or Net worth
Whether Politically Exposed Person (PEP) or related to PEP
Whether resident of another country
Country of Residence, Tax ID number and type. The declaration specifically asks to include USA as country of residence if you are a US citizen or a green card holder, even if you have moved to India and are Indian resident.
The five most common misconceptions related to residential status are:
A foreign citizen living in India is a non-resident.
An Indian citizen residing abroad on work visa is not a resident of foreign country.
A PIO with OCI card is an Indian citizen and is considered as a resident of India, even if he is living outside India.
A US citizen or green card holder living in India is not a US resident.
It is okay for a non-resident to maintain accounts and assets as resident.
Please do not take FATCA/CRS declaration lightly. I would recommend contacting your CA or CPA or financial advisor in India as well as in your resident country to understand the implications of FATCA/CRS declaration and plan accordingly.