What is FATCA?

Foreign Account Tax Compliance Act commonly known as FATCA is a very important development in US combatting Tax Evasion by US citizens. FATCA is a small piece of legislation introduced in the HIRE (Hiring Incentive to Restore Employment) Act of US in the year 2010. The legislation refers to chapter 4 of the US IR Code which was enacted by the ACT.

FATCA requires non – US foreign Financial Institution commonly known as FFI and non – US non – financial entities commonly referred as NFFE to identify and disclose their US account holder and members. In case of non – disclosure, the individual/entities shall be subject to a 30% US withholding  tax on all US income 

Mauritius was among first countries who adopted FATCA in order to be compliant with the laws. Mauritius adopted FATCA in the year 2014. The Government of Mauritius has adopted this measure through IGA Model 1.


Hiring Incentive to Restore Employment (HIRE) Act is an legislation passed in the year 2010 in the United States to provide the employers hiring new employees a payroll tax holiday for a period of 52 weeks. This incentive was necessary as the rate of unemployment in US was increasing. This 111th United States Congress was signed by the President Barack Obama.

The Act has a part known as the Foreign Account Tax which created FATCA. This part of the Act was to decrease tax evasion in the State and help the economy to boost up. with the introduction of FATCA, the US tax evasion decreased. In addition, the Act included the transparency of beneficial owners of companies. The States believe that transparency of the beneficial owners is important to increase tax transparency and decrease invasion of tax. It is believed that in every USD 6 revenue obtained, USD 1 legally should be paid as tax which was not being paid.

FATCA In Mauritius

Mauritius was among first countries which adopted the FACTA culture. The 27th December 2013, Mauritius signed a Tax Information Exchange Agreement (‘TIEA’) with the United States agreeing that Mauritius supports to have a transparent tax system with United States and its Government. Mauritius has signed an Inter-governmental Agreement Model 1 (commonly refer as ‘IGA 1’) with the United States. The FATCA agreement had brought numerous changes in the Tax regimes, Financial Institutions, Non – Financial Institutions and as well as for the Authorities in Mauritius. To implement FATCA in Mauritius, the Mauritius Revenue authorities have implemented several guidelines and FAQs helping Financial  Institutions and Non – Financial Entities to understand and make the most appropriate reporting. However, every year, there are many entities which are misclassified due to misinterpretation of the guidelines. The competent authorities have imposed severed penalties of non – filing of FATCA and/or misrepresentation of information. 

Inter – Governmental Agreement (IGA)

 Inter – governmental Agreement commonly referred as IGA is any agreement that involves two or more government in co – operation to solve problems of mutual concern (tax evasion). IGA can be made made between or among a broad rage of governmental or quasi – governmental entities.

There are namely two types of IGAs for FATCA known as:

  1. IGA Model 1
  2. IGA Model 2

IGA model 2 are simpler than IGA model 1. However, most countries have adopted a Model 1 IGA. The model 2 is simpler in the sense that the data exchange is simpler. Model 2 IGA requires implementation of local laws in the country adopting the agreement to create reporting obligations. The data that will require to be reported shall be done to IRS directly by the Financial Institutions. The authorities of the country may help in effectuating the exchange of data but do not have the responsibility of collecting and reporting data to the Internal Revenue Service (IRS) in US. On the other hand, an IGA Model 1, countries entering in the agreement, have to pass national legislation that requires Financial Institutions and reporting entities to transmit required data to the tax authority in the respective country. The local tax authorities shall in turn amalgamate data received and submit it to the IRS. Mauritius has entered an IGA model 1 with United States. All data collection shall be provided to the Mauritius Revenue Authority (MRA), who will in turn gather all the data and submit to IRS. MRA usually collect all data by the end of the month of July for the period of 1 January to 31 December of a particular year. No countries nor any year are alike. This mean that every year, the reporting landscape for FATCA reporting is very complex due to several nation across the globe have different reporting. In Mauritius, if a Financial Institution or a reporting entity has failed to report for FATCA, the MRA shall impose severe penalty in accordance to the laws and depending on the severability of the offence.

Classification of entities

Basically, an entity under FATCA may be classified as follows:

  1. Financial Institution
  2. Active Non – Financial Entity
  3. Passive Non – Financial Entity
  4. Certified Deemed – Compliant Financial Institution
  5. Excepted Financial Institution
  6. Trustee Documented Trust
The above mentioned list will be more elaborated on the post of classification of entities and forms.

Forms that are required for FATCA

Basically, the below forms are used for FATCA reporting:

  1.  Form 1042 – Annual Withholding Tax return for US Source Income of Foreign Persons;
  2. Form 1042-S – Foreign person’s US Source Income subject to withdrawal;
  3. Form 1042-T – Annual summary and transmittal of Forms 1042-S;
  4. Publication 515 – Withholding of Tax of Non – resident, aliens and foreign entities;
  5.  Publication 1187 – Specification for Electronic Filing of form 1042-S, foreign person’s US source Income subject to withholding;
  6.  Form 8938 – US taxpayers holding assets outside US must report those assets (specified Foreign Financial Assets). This FATCA requirement is in addition to the long – outstanding requirement to report Foreign Financial Account on Fin(EA) form 114, report of Foreign Bank & Financial Accounts (FBAR) (formerly known as TDF 90-22.1);
  7. Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts;
  8. Form 3520 – A – Annual Information Return of Foreign Trust with a US Owner;
  9. Form 5471 – Information Return of US Persons with respect to certain Foreign Corporation;
  10. Form 8621 – Information return by shareholder of a passive Investment Company or Qualify Electing Fund;
  11. Form 8865 – Return of US Persons with respect to certain foreign partnerships;
  12. Form 8938 – statement of Specified Foreign Financial Assets;
  13. Form W-9 – generally used by all US incorporated entities and US person
  14. W-8 Ben – E – Generally used by non – US Financial Institutions
  15. W-8 Ben – Generally used  by non – US Individuals
  16. W-8 Exp – Generally used by Non – US Government and International Organisation
  17. W-8 ECI – Generally used by US Branches of Non – US Banks
We shall elaborate more on the form in section of forms.

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