What's FATCA Tax And VAT Compliance And What Does Your Company Need to Do?



Does your company need to file taxes because of FATCA and/or VAT? Are you unsure? Any U.S. business with foreign entities most likely doe need to file, so if your company falls under this category, it’s important that you learn about them ASAP.

What Exactly Is FATCA?

The Foreign Account Tax Compliance Act (FATCA) stipulates that foreign financial institutions (as well as some nonfinancial foreign entities) are required to report on their U.S. account holders’ foreign assets.

FATCA also may also require U.S. citizens to report on their foreign financial accounts and foreign assets, depending on their total value.

What Exactly Is VAT?

A value-added tax (VAT) applies to a product whenever value is added to it during every stage of the supply chain. This includes each stage beginning with production and ending with the actual point-of-sale. VAT is considered a consumption tax and is common throughout Europe and Canada.

Generally, the amount of VAT your company needs to pay is based on the gross margin of each stage of a product’s supply chain. It is collected at every stage, as well.

What Does This Mean for Your Company?

If your company has foreign entities or is otherwise required to comply with FATCA and/or VAT, you may need to do the following:

1. Provide W-9s, W-8s, and VAT-Relevant Information

To file your FATCA and VAT taxes, you’ll need to provide W-9s, W-8 BEN IRS forms, and any information about the value-add stages of your supply chain to justify the amount you’re paying.

2. Explain Requirements to Your Suppliers

You’ll also need that information from your suppliers. Make sure they know this, so they’re collecting it throughout the year and sending it to your accounting department on a regular basis. Otherwise, your company could face penalties because of your suppliers’ mistakes.

3. Keep Accurate Records

It’s always wise to keep records about information relevant to the taxes your company needs to pay. However, this is especially true for VAT as it’s easy to lose track of data across an entire supply chain. Each stage adds to its complexity, but you may be called upon someday to justify the taxes your company pays. A secondary benefit is that keeping accurate records will make it easier to review your supply chain and find areas for potential improvements.

Best Practices for Your FATCA and VAT Requirements

Obviously, it’s essential that your accounting department knows about FATCA and VAT, understands their requirements, and is preparing accurate filings throughout the year.

It’s just as important, though, that you take these laws into consideration whenever your company decides to establish operations in another country. Don’t just check to see if VAT and FATCA applies, check to see if there are country-specific requirements you’ll need to follow.

Finally, use tax compliance software like Sovos or Tipalti that will make it much easier for your accounting department to meet the three requirements explained above.

Treating FATCA and VAT as Priorities

It goes without saying that your company needs to respect tax laws, but it’s important that you never take FATCA and VAT for granted.

Both could represent sizable taxes, which means making any mistakes in paying them would be costly.

Fortunately, by ensuring your accounting department understands these laws and has the technology to adhere to them, you should have no problem treating FATCA and VAT as priorities.