International Tax Law: What Is FATCA and CRS?

In this article, we examine FATCA and CRS, the world’s two main tax reporting standards. 

We look at what they are, why they exist, and how each came about, exploring the similarities and differences between the two and the long-term consequences for the global financial system. 

What Is FATCA?

FATCA stands for the Foreign Account Tax Compliance Act. Enacted in 2010, it is a US federal law that helps the US tax authorities track the flow of money through foreign financial institutions. 

Under FATCA, foreign financial institutions are obligated to identify and report their US clients directly to America’s Internal Revenue Service (IRS).

Before we get into the specifics of FACTCA, it’s worth pointing out that the US tax system differs vastly from the norm and remains one of only two countries in the world which taxes its citizens regardless of where they live. 

(The other is Eritrea, currently the world’s seventh most corrupt country according to Transparency International.)

So, unlike citizens of other countries who can change their tax residency by moving to another country, the IRS insists that its citizens continue to file tax reports even if they no longer reside in the US. (The only way to extricate yourself from this is to renounce your citizenship.)

How FATCA Works

Before FATCA, it was harder for the IRS to monitor offshore accounts and track tax evasion. 

FATCA fixes the problem by obliging foreign financial institutions to report US persons to the US tax authorities. 

US persons, in this case, is an umbrella term which includes all US citizens, US residents or green card holders, wherever they may reside. 

In order to enforce this, FACTA places the burden of reporting on foreign institutions, essentially penalising them for non-compliance. 

Banks that do not report US persons to the IRS are hit with a 30% withholding tax on certain US-sourced payments (mainly FDAP income such as rents, royalties, dividends and interest). 

Consequences of FATCA

If that sounds like a strong-arm tactic, it’s because that’s precisely what it is, and foreign financial institutions have been quite vocal about that fact. 

For many financial institutions in Europe, the Middle East and elsewhere, the additional labour is not worth the hassle, and so they simply avoid it by not taking on any US clients.

This, in turn, makes it harder for Americans to bank abroad.  

What Is CRS?

In finance, CRS stands for the Common Reporting Standard which facilitates the sharing of information between national tax authorities on an international basis. 

As its name suggests, it is a commonly agreed standard with over 120 participating nations. 

Notably absent is the US, alongside much of Africa and several countries in the Middle East and the South Caucasus region. 

CRS was developed by the OECD (Organisation for Economic Co-operation and Development) in response to FATCA, and there are structural similarities in how its sharing/reporting is conducted. 

With CRS, countries automatically report to one another, making it harder to hide transactions. 

The result is a more transparent global financial system where fraud and tax evasion become considerably more difficult. 

FATCA & CRS: Main Similarities

Both FATCA and the CRS were created to tackle tax evasion on a global scale. 

They operate on the same fundamental principles and are concerned with the same types of financial data and overall reporting requirements.  

While their overall approach to enforcement may be different, they each seek to incentivise financial institutions to be proactive in reporting their clients to the relevant tax authorities. 

FATCA & CRS

Purpose	To promote international financial transparency and combat tax evasion.
Methodology	Requires foreign financial institutions to conduct due diligence of clients and meet strict reporting criteria.
Principles	Both operate on the concept of Automatic Exchange of Information (AEOI), whereby financial institutions pass information to their local tax authority, who automatically share that information with their counterparts overseas.
Data	The same types of financial data apply, for example, account balances, sources of income, etc.

FATCA & CRS: Main Differences

FATCA and CRS are similar in composition and purpose but differ considerably in imposition and scope. 

While the CRS is an international agreement, FATCA is a piece of US legislation enforced on an extra-territorial basis through coercive means, by imposing financial penalties on non-compliant institutions.

Another key difference is thresholds, under FATCA, US persons living in the US must report foreign assets over a threshold of $50,000, while those based abroad have a higher threshold of $200,000. 

While the CRS also uses dollar values, its threshold system is variable, ranging from $250,000 to $1 million and depends on a range of factors, such as whether the account pre-dates CRS, or whether the account in question is held by an individual or a business entity. 

	FATCA	CRS
Enacted:	2010	2014
Effective since:	2014	2016
Legislated by:	IRS	OECD
Agreement:	Unilateral	Multilateral
Governed by:	US government	Relevant national tax authorities
Subject:	US persons only	All foreign customers
Enforcement:	30% withholding tax	No withholding tax
Threshold:	$50k or $250k if living abroad	Variable ($250k – $1 million)

FATCA & CRS: Key Takeaways

• FATCA and CRS are reporting standards designed to tackle tax evasion.
• FATCA was enacted in 2010 and came into effect in 2014.
• CRS came later, enacted in 2014 and effective since January 2016.
• FATCA is concerned with US persons only, while CRS spans 120+ jurisdictions.
• While CRS was modelled on FACTCA and serves a similar purpose, it differs vastly in its scope and its approach to enforcement.
• FATCA is a US-only, unilateral system with a controversial withholding tax, while the CRS is a multilateral agreement between 120+ countries.
• Due to the punitive nature of FATCA, it is common for foreign financial institutions to refuse US clients rather than deal with the compliance issues involved.

FATCA & CRS: Conclusion

Taken together, FATCA and CRS have forever changed the tax compliance landscape. 

Aside from more robust reporting and compliance requirements for financial institutions, the biggest legacy of FATCA and CRS has been the effective end of financial secrecy. 

In its place is a financial system that is far more transparent and where tax evasion becomes considerably more difficult.

In 2025, the notion of hiding money in offshore accounts is more of a Hollywood fantasy than a financial reality. The global financial system is far too interconnected now and information sharing is swift and automatic.

The specific consequences of FATCA, meanwhile, are twofold. The US law provided a framework upon which a global agreement, CRS, was built. 

There is another major consequence of FATCA, however, in that it now makes it considerably harder for Americans to bank abroad. 

Given its punitive nature, foreign banks often consider FATCA compliance not worth the hassle and so opt not to take on US customers. So, by punishing the banks, FATCA also indirectly punishes Americans who have done nothing wrong. 

The only way to extricate yourself from this mess completely is to renounce your US citizenship and seek second citizenship elsewhere. If such a decision seems daunting, don’t worry, help is at hand.

Our experienced team has helped secure second citizenships for thousands of global investors who now enjoy greater freedom and an enhanced quality of life, all while paying considerably less in taxes. 

Sound good to you? We’re here to show you that a better life is possible. Get in touch today to discover how. 

FATCA & CRS: FAQs

What is FATCA?

FATCA stands for the Foreign Account Tax Compliance Act, a piece of US legislation enacted in 2010 which obligates foreign financial institutions to share information about all clients who are US persons. It is effective since 2014.  

What Is a US Person?

A US person for tax purposes (US person for short), means a person who is considered liable for American taxes. This includes all US citizens, regardless of whether or not they reside abroad, as well as US residents / green card holders. 

What is the CRS?

The CRS stands for the Common Reporting Standard, which is a tax compliance act modelled on FACTA. It was developed by the OECD in 2014 and is effective since 2016.

As with FATCA, its purpose is to combat tax evasion through the automatic sharing of information. CRS currently has 120+ participating countries.  

What is the OECD?

The OECD stands for the Organisation for Economic Co-operation and Development. It is an international group of 38 nations working together to promote greater financial transparency and standardisation through initiatives such as the CRS. 

What does AEOI mean?

AEOI stands for the Automatic Exchange of Information and is the fundamental principle behind both FATCA and the CRS, whereby financial information (account details, balances, etc.) is automatically shared with the relevant tax authorities. 

Why do foreign banks sometimes refuse US clients?

Foreign banks often refuse US clients because of the hassles arising from FATCA, which puts the onus on the banks to meet specific compliance and reporting requirements or face steep penalties.

While compliance requirements are a given in any modern financial institution, the main dealbreaker with FATCA is its imposition of a 30% withholding tax on banks which are deemed non-compliant. 

What is FATCA’s 30% withholding tax?

Under FATCA, the US government can slap a punitive withholding tax on banks deemed non-compliant, taking 30% of the value of specific US-sourced transactions which the bank would otherwise have received in full, and giving it to the IRS instead. 

For this reason, many foreign banks refuse to take on US customers as the potential financial risks are too great. 

Aside from the financial penalties, the withholding tax remains controversial since, in essence, it serves to enforce US law outside of the United States’ jurisdiction. 

Does the 30% FATCA withholding tax apply to all payments?

No, the 30% FATCA withholding tax does not apply to all US-sourced payments but instead targets FDAP income, such as interest, dividends and rent. 

Payments for goods and services, however, remain largely unaffected as these are variable, rather than fixed payments. 

What is FDAP income?

FDAP income stands for Fixed, Determinable, Annual, or Periodical. It’s an umbrella term for US-sourced passive income such as rent, dividends, interest, royalties and other forms of regular, fixed payments. 

Under FATCA, this type of income can be hit with a 30% withholding tax if foreign financial institutions are deemed non-compliant by the IRS.