What is FATCA?: the Ultimate Guide

More than a decade after the Foreign Account Tax Compliance Act (FATCA) became law, its global impact is still being felt. 

What began as a US attempt to crack down on offshore tax evasion has fundamentally reshaped the international banking landscape. 

For Americans banking abroad, FATCA shattered any enduring expectations of financial privacy. It forced foreign financial institutions to report directly to the IRS and placed greater responsibility on US taxpayers to disclose their overseas assets.

FATCA marked a major turning point. It redefined how offshore banking works, made compliance more complex and introduced a raft of new risks for anyone who failed to understand the new rules of the game.

Ten years on, and the message is clear – whether you’re already banking offshore or considering it, understanding FATCA is non-negotiable.

If you’re unsure how FATCA or CRS impacts your current strategy or want help structuring your offshore banking legally and efficiently, reach out to our experts.

In this guide, the Nomad Capitalist team breaks down what FATCA is, why it matters, how it compares to similar global standards like the Common Reporting Standard (CRS) and what it means for US citizens navigating the offshore landscape.

Do bear in mind this guide is not intended to serve as personal tax or financial advice. Instead, it aims to answer general, key questions on the subject of FATCA, CRS, and banking privacy in the modern era.

What is FATCA?

FATCA stands for the Foreign Account Tax Compliance Act, whose primary purpose is to compel foreign financial institutions to report information about accounts held by all US citizens, Green Card holders and other individuals classified as US persons for tax reasons to the Internal Revenue Service (IRS).

FATCA was introduced to compel foreign banks and foreign financial institutions to share information directly with the IRS about their US account holders. 

Before FATCA, US persons were required to report foreign accounts through forms like the FBAR (Foreign Bank Account Report), and the IRS could request bank records during audits. 

However, foreign institutions were not obligated to proactively report to the US government, which led to gaps in enforcement and concerns that offshore accounts were being used to hide income and evade taxes.

To close these gaps, FATCA created a unilateral reporting system backed by the leverage of the US financial network. Banks and financial institutions that fail to comply face a 30% withholding tax on certain US-source payments–a penalty that discourages non-compliance and incentivises cooperation.

At its core, FATCA shifts the burden of enforcement from the United States government to the global financial system. 

By requiring foreign financial institutions to identify and report US account holders or face significant financial consequences, FATCA ensures broader compliance with US tax laws on an international scale.

FATCA Reporting Requirements for US Expats in 2025

If you’re a US citizen living abroad and holding foreign financial assets, FATCA applies to you in 2025, and ignoring it can be costly. 

Form 8938 must be filed with your annual tax return if your foreign financial assets exceed certain thresholds. For most expats, this kicks in if you have over US$200,000 in assets at year-end or over US$300,000 at any point in the year. 

If you’re married and filing jointly, the thresholds jump to US$400,000 and US$600,000, respectively. 

These numbers matter because not filing Form 8938 can bring a US$10,000 penalty, with more charges if you ignore IRS follow-ups.

It’s important to note that Form 8938 doesn’t replace the FBAR (Form 114)– and you may need to file both. 

FATCA covers a wider range of foreign financial assets, including stocks, partnership interests and certain insurance policies. 

And yes, foreign banks may ask for your US citizenship status when you open accounts because they’re also required to report to the IRS. 

Why Did the US Create the Foreign Account Tax Compliance Act?

Let’s go back to the year 2010. 

The Great Recession was in full swing, and countries like the US were going broke after major bank bailouts and economic instability.

President Obama signed the HIRE Act (Hiring Incentives to Restore Employment Act) into law as part of an attempt to stimulate the US economy via employment incentives and infrastructure projects.

The problem was that this plan was expensive. Both the President and Congress needed to come up with a politically viable source of funding.

And what better target than the wealthy people believed to be hiding money in offshore bank accounts?

Offshore banking has developed a controversial reputation, shaped by high-profile cases where wealthy individuals and large corporations used it to avoid taxes or conceal foreign assets.

While we do our best to counter that bad rap, the reality is that some people still view offshore banking as a tool for tax evasion (which is simply not true).

So, to fund the stimulus plan and increase tax compliance, FATCA was introduced as part of the HIRE ACT, targeting undeclared offshore assets held by US persons.

For US politicians, FATCA seemed like a win-win – a practical solution with minimal political risk. However, for those of us who live and bank abroad, FATCA turned our world upside down.

The Consequences of FATCA

For many people in the US, FATCA flew under the radar because it had no effect on their lives.

Even those who fought adamantly against the stimulus package rarely brought up FATCA as an argument for ditching it.

Unless you were one of those people hiding their money offshore, then why would you care?

However, for those banking abroad as US citizens or other US persons, FATCA had a palpable impact on our ability to open and maintain offshore bank accounts.

The Immediate Aftermath: Bank Account Closures

Once FATCA came into effect, offshore banks either ditched their US customers or begrudgingly complied with the law.

With the threat of a massive withholding tax hanging over their heads, many banks – especially in jurisdictions like Switzerland – waved goodbye to their US customers.

Many banks decided that their US customers weren’t worth potentially losing access to the US financial system, so they got rid of customers who could potentially be considered US persons by FATCA.

These banks refused to accept new US clients and gave those with existing accounts notice that they had to leave.

Although these closures caused headaches for all Americans with foreign bank accounts, they created particular difficulties for US persons living in a foreign country. It didn’t matter if you had a mortgage or a checking account while living in that country – the bank was still going to close your account if you were a US person.

So, in the immediate aftermath of FATCA, many US persons who lived or had businesses overseas were left in the lurch because they weren’t able to bank in the country in which they were living, working or doing business.

These kinds of mass account closures drove a major increase in the number of US citizens who renounced their citizenship. US citizens who lived abroad were simply tired of being rejected by bank after bank.

However, US citizens weren’t the only ones who experienced headaches after FATCA. 

Non-US persons started getting letters from their banks asking them to certify that they weren’t US citizens or tax residents. In some cases, they had to work hard to convince their banks that they were not US persons.

Anyone who had as much as a US address or telephone number, anything remotely tied to the United States, got caught up in this massive paperwork storm. 

Because FATCA made banks enforce its provisions, they either opted out or kicked out their US customers. Or, they made life difficult for everyone by shifting some of the bureaucratic burden to their customers.

A Mountain of Paperwork

So, what about the banks that decided to keep their US clientele?

Since they now had to deal with the onus of FATCA, these banks essentially made life difficult for everyone by forcing them to fill out far more paperwork and jump through more hoops than ever before.

For one thing, nearly all banks now ask whether or not you’re a US person, and even if you’ve never even set foot in the US, you’ll need to fill out a form certifying that you don’t have any tax obligations to the US.

In some cases, this form might be as simple as a signed statement certifying that you aren’t a US person, but in others (particularly if you have ever lived in the US or paid US tax), you might need to provide more extensive proof that you’re no longer a US person.

On the other hand, if you are a US person, then you’ll likely need to fill out a plethora of forms for FATCA reporting, and these are just for your bank. You still will need to report your foreign bank accounts to the US government on your taxes and FBAR.

You see, since the banks themselves have to bear the burden of enforcing FATCA, they’re going to push some of that bureaucracy onto their customers, which means you now have to fill out a small mountain of paperwork to open or maintain your offshore accounts.

Can US Persons Still Open Foreign Bank Accounts?

In the wake of these developments in the offshore banking world, it was unclear whether US persons could still open bank accounts overseas.

After account closures in places like Mexico and Switzerland, many offshore influencers and consultants became convinced that US citizens and other US persons could no longer bank abroad. Or if they could, they were severely limited in their ability to do so.

However, that’s simply not true.

As we have discussed in another article, US persons can still open bank accounts in many countries, and in some places, they can still do so with relative ease.

Granted, certain jurisdictions like Switzerland and Liechtenstein have largely closed their doors to US citizens, and other countries are unlikely to accept US citizens who aren’t depositing a large amount of money. 

Additionally, services like remote banking might not be available to US citizens if the bank doesn’t think it can meet FATCA’s due diligence standards.

Despite these limitations, there are still plenty of high-quality banks and banking jurisdictions that are happy to accept US persons. 

Georgia, which is an incredibly easy place to open an offshore bank account for anyone, is very much open to US citizens, and with high interest rates on certain term deposits, it’s an excellent jurisdiction to bank in.

Even exclusive jurisdictions like Hong Kong still accept US citizens if they’re willing to make a large enough deposit.

From our experience, some banks don’t really care if you’re a US citizen as long as you make a large enough deposit.

The fact is that you can still open an offshore bank account as a US citizen, despite what the misinformation on the internet may say.

You might need to fill out a bit of extra paperwork, but it’s worthwhile to reap the benefits of banking offshore.

FATCA and Worldwide Compliance Initiatives

Although offshore banking has certainly become harder for US citizens, it’s becoming increasingly difficult for anyone to open a bank account outside of their home country.

After the US officially instituted FATCA, it was only a matter of time before other countries decided to implement their own compliance measures to control their citizens’ finances.

Ultimately, FATCA inspired a variety of international ‘alphabet soup’ tax programs that aim to monitor people’s banking activities more closely.

The best-known of them is the Common Reporting Standard.

After the US implemented FATCA, the Organisation for Economic Cooperation and Development (OECD) decided to create its own system for sharing information among offshore banks and foreign governments. 

Like FATCA, CRS is intended to root out tax evaders and money launderers by forcing banks to report data on their customers to governments around the world.

CRS, however, is far more expansive than FATCA. With around 110 different countries in the program, CRS’s information-sharing network is massive and is only going to become even larger.

However, the strange thing about CRS is that the US still isn’t a part of it. 

The US government uses bilateral agreements with other countries to enforce FATCA, though citizens of other countries can have a degree of banking privacy in the US.

In addition to CRS, there’s also BEPS (Base Erosion and Profit Sharing) and AEOI (Automatic Exchange of Information). These programs, which were also developed by the OECD, aim to enhance different countries’ abilities to monitor citizens’ tax compliance and improve their tax rules and enforcement capabilities.

Ultimately, these kinds of mass information-sharing systems and elevated compliance standards are becoming the norm in international banking and have caused banks to become increasingly closed off to non-residents.

While going where you’re treated best in offshore banking is certainly doable, it’s becoming harder thanks to FATCA, CRS and new compliance and de-risking standards.

Is FATCA Working as Intended?

There has been ongoing debate about whether the consequences of FATCA were part of the plan or unexpected side effects. 

Officially, the US government introduced FATCA to increase tax compliance and collect revenue from individuals hiding assets overseas.

In practice, however, FATCA has not generated significant revenue. While it has helped identify some cases of offshore tax evasion, the financial return has been modest. 

This raises the question of whether revenue collection was truly the main goal. In effect, FATCA functions as a form of capital control. Although US citizens are certainly able to open offshore bank accounts, FATCA has made the process far more difficult. 

This has created an unintended effect. Some Americans wrongly believe they’re not allowed to bank abroad, while others find the compliance requirements too cumbersome and decide it’s not worth the effort. 

The result is that fewer US persons are moving their money offshore, even when doing so is legally and strategically sound.

Whether or not capital control was the original intent behind FATCA, the outcome suggests it is serving that purpose.

Is FATCA Here to Stay?

The problem with FATCA and similar laws is that although they’re designed to catch criminals, they end up negatively impacting innocent people who want to live abroad or diversify their assets.

These kinds of laws have a number of unforeseen consequences.

In the end, criminals are still going to be criminals and will find ways to cheat the system, while everyday citizens have to deal with bank account closures and mountains of paperwork.

For this reason, there have been calls to repeal FATCA or, at the very least, rein in its reach.

During the 2016 election, for instance, Republican candidate Ted Cruz publicly proposed that the US should repeal FATCA since it places undue hardship on honest people who simply want to live or operate a business abroad.

Unfortunately, the odds of FATCA being repealed in its entirety are slim. It’s simply far too politically expedient to target the ‘evil rich.

One proposal, however, is that FATCA could be amended to no longer apply to citizens who can prove that they are no longer residents of the United States. 

However, this is still just talk.

FATCA Reporting: FAQs

FATCA and a New Era of Offshore Banking

When FATCA came into effect, a new era of offshore banking began, and now more than ever, it’s crucial that your offshore strategy is completely transparent and legal.

The days of stowing away money in a secretive Swiss vault are over. Even banks that initially turned their noses up at FATCA are now complying, and the majority of quality banking jurisdictions are a part of the CRS.

Although there are a few legal ways of avoiding this kind of snooping, you still need to answer to your home country, and trying to hide your wealth will only land you in an orange jumpsuit.

The good news is that there are still ways to legally reduce your tax burden. 

One strategy is to take advantage of tax laws that allow you to ease your pain come tax season. Offshore life insurance, for example, is an IRS-sanctioned tax shelter available to US citizens, and US citizens can also take advantage of things like the Foreign Earned Income Exclusion.

For more permanent results, you can become a resident of a country with low-to-no taxes and give up your tax residency at home (if you’re not a US citizen, that is), or you can even get a tax-friendly second passport.

The fact is, there are plenty of changes that you can make to become a tax-free global citizen, but squirrelling your money away in a secretive bank account and hoping the IRS (or your government’s tax enforcer) will be none the wiser isn’t one of them.

Your offshore strategy needs to be legal, transparent, and effective to be successful, and you need to be willing to make the changes to achieve this. Contact our team to help get your offshore plan in motion.