FATCA: Implications for Brazilian Banks that decide to go to the USA

If you live in the United States and have accounts or investments in other countries, you must have already heard of FATCA. This acronym, which stands for Foreign Account Tax Compliance Act, refers to the U.S. law that regulates investments and tax accounts belonging to U.S. Persons who are outside of U.S. territory.

To understand the FATCA, you first need to know who is considered a US Person for tax purposes:

  • People who were born in the U.S.;
  • People who have U.S. citizenship, even in cases of dual nationality or residence in a different country;
  • People who have a Green Card (permanent residence permit);
  • People who have been in the U.S. for at least 31 days in the current year and 183 days during the past three years;
  • Companies or societies incorporated in the U.S.;
  • Foreign entities with final beneficiaries who are U.S. Persons.

For Brazilians who are considered U.S. Persons due to any of the reasons mentioned above, an important information is that Brazil is part of the FATCA Agreement with the U.S. Internal Revenue Service (IRS).

This means that the Brazilian Federal Internal Revenue Service monitors data with the financial institutions and informs the IRS about relevant information on taxpayers who qualify for U.S. Person status.

What are the FATCA implications for Brazilian banks that decide to go to the U.S.?

Concerning this topic, Bruno Drummond, partner at Drummond Advisors, and David Tobon, from Becker Glynn, talked about the impacts of the FATCA for Brazilian banks entering the North American market. Experts also commented on what are the obligations of account holders in this case.

According to Bruno Drummond and David Tobon, more and more Brazilian banks are entering the North American market. In these cases, the FATCA works as a “know your customer”, since these institutions are required to identify who the U.S. Person account holders are. This information is identified by the bank by completing the W-8 BEN E form (for companies) and the W-8 BEN form (for individuals). This document, known as Certificate of Foreign Status of Beneficial Owner, certifies the cases in which individuals should not be considered a taxpayer for the withholding of taxes on their income in the U.S.

According to the FATCA, companies that are account holders must inform the bank whether the business in question is an FFI (Foreign Financial Institutions) or a Non-financial Foreign Entity (NFFE), also for withholding tax purposes.

Experts also emphasize the existence of the CRS (Common Reporting Standard), which uses a system that is very similar to that of the FATCA. Valid for both individuals and financial entities, it provides for an exchange of information between banks and governments. The purpose of this tax model is for data on citizens’ financial assets to be reported to federal revenue agencies in order to prevent tax evasion.

Accountants comment that Brazilian account holders who live outside the country must inform banks in Brazil whether or not they are considered U.S. Persons. According to experts, there are many cases of retirees who went to live abroad, but who keep receiving their pensions in Brazilian banks. In such cases, following the FATCA, the information must be reported.

David Tobon also emphasizes that banks in the U.S. have the responsibility of asking the question “are you a U.S. person?” when the person is opening an account – all that to be tax compliant. And depending on the type of account, it may be necessary to obtain additional information from the American using form WY9.

According to Bruno Drummond, the bank often reports accounts to both the IRS and FATCA and the mismatch is when taxpayers do not report such accounts to the U.S. tax authorities. David Tobon points out that this is a big risk for both sides. The most common one is that the bank does the whole procedure correctly, but not the taxpayer.

Another very important tax compliance instrument for someone considered a U.S. tax citizen is the FBAR (Foreign Bank Account Report). This report is based on the completion of FinCEN Form 114. The purpose of this report is also to fight tax evasion and should be submitted to FinCEN, the Financial Crime Investigation Network of the U.S. Treasury Department.

For companies with accounts outside the U.S., and they all exceed US$ 10,000, it is necessary to report the existence of all of them. And for each account not reported, the individual can be penalized in US$ 10,000. It should be emphasized that, in addition to the accounts which are in the person’s name, the accounts in which the individual can sign must also be reported.


Written by Aline Ribeiro, Senior Communications Consultant at Drummond Advisors