FATCA (Foreign Account Tax Compliance Act)

Definition

FATCA (Foreign Account Tax Compliance Act) is a US federal law requiring financial institutions located outside the United States to identify, among their clients, persons regarded as US taxpayers, and then to report certain information relating to their accounts and holdings. The stated aim of this legislation is to combat tax evasion by persons with US tax ties who might hold undeclared assets abroad.

Framework in Mauritius

Mauritius has entered into an intergovernmental agreement with the United States governing the application of FATCA on its territory. Under this framework, Mauritian financial institutions — banks, fund managers, and management companies licensed by the Financial Services Commission (FSC), in particular — are required to put in place procedures to identify, among their clients, persons with US taxpayer status, and then to transmit the required information to the Mauritius Revenue Authority (MRA). The MRA, as the competent authority, then relays this information to the US tax administration. This mechanism forms part of the same international tax transparency movement as the Common Reporting Standard (CRS), with which it shares several due-diligence obligations, without being identical to it: FATCA specifically targets US taxpayers, whereas the CRS covers a broader range of participating jurisdictions.

In practice

Anyone entering into a business relationship with a Mauritian financial institution — opening a bank account, subscribing to a fund, structuring a company — may be asked for information enabling their status under FATCA to be established: nationality, place of birth, residential address, and powers of attorney or wire-transfer instructions linked to the United States are among the elements usually examined. A tax self-certification is generally requested, and any change in circumstances liable to affect this status should in principle be reported to the institution concerned. The central point of caution concerns the accuracy and ongoing updating of this information: an incomplete or subsequently inaccurate declaration may delay a transaction or lead to further requests from the financial institution. These obligations apply regardless of the structure chosen and are, ultimately, the responsibility of the financial institution and its client, with each situation to be assessed case by case.

Related terms

FATCA is frequently mentioned alongside the Common Reporting Standard (CRS), another automatic tax-information exchange standard, as well as the KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures that every Mauritian financial institution applies before entering into a business relationship. These obligations concern structures administered by a Management Company licensed by the FSC, whether a Global Business Company (GBC) or an Authorised Company (AC).

Related terms