The Foreign Account Tax Compliance Act, also known as FATCA, was enacted by the United States to prevent worldwide tax evasion by US (connected) taxpayers. FATCA obligates taxpayers to report the existence of their non-US financial accounts and foreign assets to the Internal Revenue Service.
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As a result of this act, the US and Dutch governments have an intergovernmental agreement that makes FFIs (Foreign Financial Institutions) in the Netherlands (like elsewhere) register with the IRS and requires them to report all financial assets that Americans and US connected persons own abroad.
Dutch banks have to report each client that is subject to American legislation – and possesses a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) – to the Dutch tax authorities (Belastingdienst).
Since FATCA came into force in 2010, it has impacted Americans and US connected persons living abroad tremendously. People who have not filed their US tax returns, can – when identified by the IRS – expect to be penalized.
Although FATCA causes many a headache and adds an additional layer of challenges to the already complex system of expat financial planning, most US persons who voluntarily file their taxes will generally have to pay little or no tax at all, and are unlikely to have to pay penalties. Besides, there are also opportunities which some people are not aware of.