With the increase in cross-border capital flows, governments and financial institutions worldwide are taking a number of steps to deter illegal financial activities like tax evasion and money laundering. Formation of FATCA and CRS are two such measures. Let’s understand the FATCA & CRS declaration in detail and their importance for citizens of member countries, including NRIs and Indians.
What is FATCA?
The full form of FATCA is Foreign Account Tax Compliance Act. It is a tax law that requires US citizens living in the US or abroad to report annual reports on any foreign account they are holding. The objective of FATCA implementation is to eliminate tax evasion by American citizens and businesses that are investing, operating and earning taxable income abroad.
What is CRS?
The full form of CRS is the Common Reporting Standard. CRS is an international version of FATCA and is applicable for citizens of each registered country. It is an initiative of G-20 countries and Organisation for Economic Cooperation and Development (OECD) for the automatic exchange of information (AEOI) on financial accounts.
Difference between FATCA and CRS
Both FATCA and CRS were formed to validate and reinforce tax compliance globally, but there are certain differences between FATCA and CRS, which are as follows:
|Financial institutions are required to report only those customers who qualify as US persons.||CRS is applicable for persons of more than 90 countries.|
|The balance of an account holder must be more than $50,000 under FATCA||No minimums are mandatory under CRS.|
|Only a few thousands US people are reported under FATCA.||Several millions of accounts are reported under CRS.|
FATCA and CRS agreement signed by India
The Government of India and the United States of America signed the FATCA Inter-Governmental Act (IGA) on 9th July 2015. The agreement requires Indian financial institutions to carry out enhanced KYC procedures to identify accounts of US taxpayers and report on such accounts on an annual basis.
India is a part of G-20 countries and signed up for CRS on 3rd June 2015 as one of the early adopters of CRS. Similar to FATCA, CRS is an agreement for automatic exchange of information between bilateral treaty partner countries about account holders/ investors in foreign jurisdictions.
FATCA and CRS declaration
Account holders will have to file FATCA and CRS declaration:
FATCA Declaration for NRIs
It is mandatory for all NRI investors living in the US to file a FATCA self-declaration. While the details required might slightly vary with each financial institution, the standard information required is as follows.
- Permanent Account Number (PAN)
- Place (city/state) of birth
- Country of birth
- Gross Annual Income
As per the declaration, US citizens and permanent residents need to choose the USA as a country of residence, even if you have returned to India and are now an Indian resident.
Consequently, the tax authorities will have access to all relevant information. Hence, you must inform the respective financial institutions within 30 days in case of any change in the above information.
Most of the conditions mandated under CRS self-declaration are similar to those of FATCA. However, unlike FATCA which is only applicable to US taxpayers, CRS covers taxpayers from more than 90 countries. You can download the FATCA/ CRS self-declaration form online. Alternatively, you can also visit an Asset Management Company (AMC) office to procure the form.
NRIs can submit the self-declaration form online as well as offline at any of the fund house branches. You will have to enter the OTP generated using your PAN number to complete the registration.
Documents required for FATCA & CRS declaration
US persons and US-based NRIs are required to submit the following documents:
- PAN card
- Any of government issued IDs such as Aadhaar card, voter’s ID
FATCA/CRS declaration acts as an extension of the KYC documents. On the declaration, the Indian government will identify the taxpayer as an NRI or resident.
Tax evasion and money laundering are worldwide problems. FATCA and CRS ensure worldwide transparency and consistency of compliance among participating countries. Hence, US citizens, green card holders and NRI investors should keep these regulations in mind, especially when investing in offshore funds.
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Inter-government Agreement or (IGA) is a bilateral agreement between the US Government and government of the country that facilitates compliance with FATCA. This pact mandates financial institutions in the designated jurisdiction to comply with FATCA.
India and the US have signed the FATCA Inter-Governmental Act based on the Model 1 IGA. India has also signed up for CRS and is a part of G-20 countries.
FATCA legislation is applicable to both individual customers and businesses who are treated as US persons for US tax purposes. The law also affects certain types of entities controlling persons from the US.
CRS covers account holders/ owners or controlling persons of entities, who are tax residents of any of the signatory countries.
The information required will depend on the classification of the customer under FATCA and CRS. Standard information required includes country of tax residence, tax identification number from the country, citizenship, country of birth, etc.
In case of non-individual account holders, the person controlling the entity will have to submit these details.