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The Full form of FATCA is Foreign Account Tax Compliance Act. FATCA requires United States persons at home or abroad to file annual reports of their foreign account holdings for their financial assets outside the US and accordingly pay U.S. tax. As per this tax, the taxpayers of the U.S. have to report yearly all of their financial assets held outside of the country. We can say that it promotes cross-border tax compliance for the automatic information exchange related to taxpayers of the U.S. through the international standard.

FATCA aims to increase the transparency for the IRS (Internal Revenue Service) with respect to persons of the U.S. who have invested and earned profits through overseas non-US institutions. NFFE (Non-Financial Foreign Entities) and Non-U.S. FFI (Foreign Financial Institutions) are also required to comply with FATCA by disclosing the identities of citizens of the U.S. and the value of their assets held in their banks to the IRS (Internal Revenue Service) or the FATCA IGA (Intergovernmental Agreement).

Foreign Financial Institutions are supposed to be excluded from the U.S. markets which do not follow the Internal Revenue Service, and they are also required to pay 30% of the amount of any kind of withholdable payment as a tax penalty.

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