It would be hardly a decade ago, when President Barack Obama chose to sign the Foreign Account Tax Compliance Act (FATCA) into law. This was the start of a new era that introduced higher levels of transparency into the banking industry, especially the offshore one. For generations, the privacy of offshore bank accounts was destroyed around the world. Many people are not great fans of the new law. The idea of having honest, legal and open offshore dealings may seem impressive. However, there are few other aspects of FATCA that didn’t change the actual nature of offshore banking.
Offshore banking “no” FATCA was a search for many years. Investors who were accustomed to the older ways of investing, looked for countries that didn’t support FATCA. However, this law had a prudent impact on both the non-residents and residents of US around the globe. In fact, it introduced many unforeseen consequences too!
With this being said, lets understand what FATCA means, and why offshore banks no FATCA was a big deal.
What is FATCA?
As mentioned previously, FATCA represents the Foreign Account Tax Compliance Act. As you can see, this act ensures that all green card holders and US citizens are reporting their financial dealing to the IRS. Information of any account held in foreign banks should be disclosed. This law covers everything from non-US financial holdings to offshore bank accounts. The law was designed carefully to force offshore banks around the globe to present information about US account holders to the IRS directly. Indeed, this was a big move, that took both offshore bankers and customers down!
What happened before FATCA?
Before the FATCA was effective, citizens of the United States were able to hold offshore bank accounts. And, details about these bank accounts had to be disclosed to the IRS. The FBAR report had to be filed with government organizations. With this report, IRS had the freedom to request information from offshore bankers. The information was often requested during inquiries and audits. Yet, the enforcement was weak. And, banks were not expected to disclose any information to the US government directly. This means, offshore customers had a way of getting away with their investments. In fact, very few offshore customers had the habit of disclosing their investments to the government. This brought suspicion on how much money was held around the world for illicit reasons. And, governments were curious to know how much money was hidden from the local taxation systems.
This triggered the need for FATCA.
What happened after FATCA?
Once the FATCA was signed, the US government had the document required to gather information from around the world. The financial regulation forced institutions and banks to share details. If a bank refused to share information about US citizens with the government, they will be given a massive withholding tax. This would stop the bank from using the financial system of USA. There are many deep thoughts behind FATCA. This law ensured that much of the enforcement was accomplished by the bank. And, the IRS will be able to collect funds without engaging in much work. To be precise, the IRS would hardly need to do any work here. With the FATCA coming into act, many investors look for offshore banks No FATCA option!
Why was the FATCA created?
Now, you might be curious to know why the FATCA was designed in the very first place!
If you are a part of offshore investments, you might be aware of how vast and rich this industry is. The reasons why FATCA was imposed goes back to 2010. This was when the Great Recession happened, and countries like USA broke after a major bailout in the banking industry. There were other spending bills too. As a result, President Obama chose to pass the Stimulus Bill. This bill was all about reinvigorating the economy by building ditches, bridges and roads. The president was keen in making hopeful investments. The only problem with this idea was, everything was too expensive. The right kind of funding was required to support the move. And, what would be a better way of searching for money than from offshore banks?
Isn’t this where people choose to protect and hide their funds?
With few bad apples, the overall reputation of offshore banking has changed. For many years, offshore banking was considered as a way of evading taxes from your home government. And, this was identified as a domain for big corporations, and the wealthy. Even when the image around offshore banking improved, topics like tax evasion and money laundering did not vanish.
The FATCA was a big win for the United States. Mainly because it generated a non-controversial form of revenue into the country. However, offshore investors were aware of these changes. And, offshore bankers were also aware of how this would impact their image. Hence, many people started to aim for offshore bank NO FATCA.
Immediate Impact of FATCA
You might be curious to know what happened immediately after the Bill was signed. Well, many offshore banks had to ditch their customers from the United States. And, few others chose to comply with the law. Banks that ditched their US customers fall under the category of “Offshore banks No FATCA”. This helped people from other parts of the world continue with their offshore investments. Though FATCA was raised by the US, it did have an impact around the world. If you are a foreigner, who is not from the USA – you can choose to open an account without the trouble of FATCA. But, if you are a US Citizen, who is located in Switzerland, and if you own a Swiss account – you need to deal with FATCA. Soon after the Bill, many offshore banks decided to reject applications from US Citizens. Likewise, US persons with offshore bank accounts had to leave the system.
Today, things have improved and offshore banks have found a way of supporting US citizens. Hence, you need to look for “Offshore banks NO FATCA” when you search.