What is FATCA?

Whilst US laws treating its citizens as tax residents of the USA have existed for as long as the IRS, the enforceability of such laws was near zero, unless a taxpayer entered the United States. Introduced under the presidency of Barack Obama, the Foreign Account Tax Compliance Act, or FATCA, is United States law which, amongst others, gave the IRS far greater powers to pursue non-filers overseas.

It aims to reduce tax evasion by US persons using financial accounts outside the United States of America, essentially also capturing any US person who resides overseas.

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How does FATCA work?

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The law works by requiring foreign banks to provide certain information about customers who are US persons.

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At the time of writing, 113 jurisdictions around the world had signed up to US FATCA legislation, ensuring co-operation from banks operating on their territory, in addition to their tax departments.

New Zealand also signed up to FATCA legislation on 3rd July 2014, which from this point required banks to provide information regarding US person customers, to Inland Revenue, which then passes it on to the US Internal Revenue Service.

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Information sharing between the IRD and IRS began in 2016.

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What are the implications of FATCA in New Zealand?

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The most obvious and noticable impact of FATCA is the question which now exists whenever a financial account is opened in New Zealand: "Are you a tax resident of the United States?"

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Banks use this question, amongst other considerations, to determine which of their customers are US citizens. Generally, existing customers who do not answer this question when asked, tend to have their accounts closed.

What if I do nothing and decide not to file?

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FATCA is an active law in New Zealand, meaning should you choose not to file, you are putting yourself at significant risk. As mentioned above, IRD and IRS information sharing is already underway, and by choosing not to file, it could be considered only an inevitability for there to be future negative consequences.