FATCA & CRS – Declaration, Regulations & Requirements

In this era of globalization, where new markets are emerging at a much faster pace, it is necessary to have policies that can prevent tax evasion. Hence, FATCA and CRS are two such initiatives that prevent offshore investors from tax evasion and invest unaccounted cash overseas.

About FATCA

The United States Tax Department launched FATCA in the year 2010. This was aimed to promote tax compliance and thereby to discourage the possible tax evasion. FATCA is an acronym for the Foreign Account Tax Compliance Act.

About CRS

Consider CRS as a rather global version of FATCA as the latter applies only to the citizens of the USA. In contrast, CRS is used for all the citizens of every registered country.

FATCA	CRS
Requires the assistance of a financial institution to locate people in the USA.	The CRS is open to 90 countries (except the US) – it has a wider reach
It is not always mandatory to report on financial statements	CRS obliges you to report your financial accounts
Person account should have a balance of more than $50,000	CRS has no minimal capping
There are just a few thousand US citizens listed under FATCA	CRS reports to have several million accounts

Both the FATCA and the CRS, therefore, prohibit offshore investors from escaping taxes and hosting out-of-country funds. Nevertheless, tax authorities from both G20 and OECD countries required cooperation. Eventually, it adopted the Community Reporting Standard or CRS.

1. Foreign Account Tax Compliance Act

FATCA was developed to counter tax evasion and ensure strict compliance with tax laws. The main goal is to identify and prevent US citizens or residents from avoiding offshore tax. In short, an effort to track US investment earners and assets from abroad in other countries!

When US individuals fail to comply with the reporting requirements, the FATCA requires financial institutions to withhold tax. All financial institutions licensed under this Act will notify the US fiscal department immediately when they encounter US tax evaders.

Consequently, all FATCA-registered banks immediately disclose these account holders (with the details available). This Act affects US multinationals and international financial institutions directly and profoundly.

2. US-India agreement to implement FATCA 

FATCA guarantees worldwide conformity with taxation and transitions. It provides foreign financial institutions with an opportunity to improve their tax reporting process and streamline it. This also gives them exposure abroad and the confidence of investors.

In 2014, the Government had introduced Rules 114F to 114H and Form 61B into the Revenue Tax Act to satisfy FATCA. The Indian Government also signed the 2015 FATCA Intergovernmental Agreement (IGA) with the United States of America. The agreement requires Indian tax officials to obtain specific information from US investors on their accounts.

The aim was to ensure that US citizens’ tax compliance while increasing their Internal Revenue Service (IRS) transparency. This provided the reporting financial institutions with a legal basis for maintaining and reporting personal and income information.

3. FATCA declaration for NRIs

Since January 2016, all Indian and NRI investors (existing and new) have been required to apply a FATCA self-declaration. The details of each financial institution may be slightly different, but the standard information they mandate is:

a. Name

b. Permanent Account Number (PAN)

c. Address

d. Place (city/state) of birth

e. Country of birth

f. Nationality

g. Gross Annual Income

h. Occupation

i. Whether or not the person is of another country? If so, then it needs to get information on the residence country, Tax ID number, and type.

This argument demands explicitly that the United States be used as a country of origin, whether you are a US resident or a green cardholder. It holds even though you are already an Indian national and have moved to Pakistan. This declaration states that this issuance has already been approved by the Central Board of Direct Taxes (CBDT) under Regulations 114F-114H. As a result, all related information should be available to tax authorities. In the event of a change in the above information, please contact the respective financial institution within 30 days.

4. Common Reporting Standard or CRS

The Common Reporting Standard (CRS) for Automatic Information Exchange (AEoI) was developed by the Organization for Economic Co-operation and Development (OECD). CRS mandates financial institutions across countries to provide information on their citizens and their assets abroad to their respective tax authorities. This can help governments obtain information on their citizens’ financial assets worldwide, for tax reasons. So far, this global standard has been agreed to by more than 90 countries.

India also signed a multilateral agreement on the transfer to the respective tax authorities of the citizens of another country’s personal and account details. In compliance with the CRS law, Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters applies to this. 

5. CRS Declaration

Most of the details mandated by the CRS are similar to FATCA’s self-report. Nevertheless, compared to the FATCA, the CRS protects taxpayers from more than 90 countries but applies only to US taxpayers. The CRS self-declaration form can be downloaded from any offshore website. Additionally, the fund house support centers or the Asset Management Company (AMC) office may also be viewed.

Send the self-declaration online or offline to one of the branches of the fund business. For example, this service is offered by registrars and transfer agencies such as CAMS. To complete the registration, the OTP created by your PAN number will be required. The assertion from CRS is nothing more than an extension of the documentation of Know Your Customer (KYC).

6. Documents for FATCA & CRS declarations 

All foreign financial institutions in India mandates US persons to submit the following documents:

a. PAN Card

b. Passport

c. Government-issued IDs like Voters ID or Aadhaar  

Through this declaration, the Government of India must classify the investor as a citizen or NRI. The Central Board of Direct Taxes (CBDT) shall issue updates on all NRI investors’ necessary information.

Tax evasion is not a country-specific issue. The ideas would also stop that at a global level, where the emphasis is placed on worldwide transparency and compliance among registered nations. Mostly, in recent years, FATCA and CRS have done a huge deal to reduce tax avoidance and non-compliance worldwide. Therefore, individuals in the United States, including NRI investors, should be aware of these regulations, particularly if they plan to invest in offshore funds.