Tax Havens versus FATCA

In the past without government support around the world, Americans were able to keep offshore accounts in the Bahamas, Switzerland, Cayman Islands and many other tax and secrecy havens around the world without the IRS scrutiny.  Foreign Account Tax Compliance Act or FATCA became law on July 1, 2014,  The purpose of FATCA is to target Americans who are evading paying US taxes by hiding their assets in a foreign country.  As a result foreign financial institutions have to sign on to agreeing to comply with FATCA and a Global id number would be assigned to that institution.  By agreeing, the foreign financial institutions are required to report to the IRS all client accounts own by US persons.  If any FFI does not agree to sign on to this agreement, they will not have a GIN number and as a result US will impose a 30% withholding tax on their US transactions as a penalty.

The implementation of FATCA creates a burden on foreign financial institutions oversea as it creates A burden on system and resource to support this initiative.  Also those financial institutions in secrecy haven countries may be in violation of their own local privacy law if they sign on to complying with FATCA, a US based law. As a result small institutions abroad may choose not to comply and decide to deny or lock out certain services to Americans living abroad.