WHAT IS FATCA? AND WHY IS MY BANK WRITING TO ME ABOUT IT?

What Is FATCA?

The Foreign Account Tax Compliance Act(opens in new tab) (FATCA) is US legislation designed to reduce tax evasion by US citizens, tax residents, and entities. It’s a reporting regime, not a tax itself. Its purpose is making sure US persons meet their existing tax obligations, wherever in the world their money sits.

Foreign financial institutions must identify and report on accounts held by US citizens, tax residents, and certain other US-connected entities under FATCA. That includes every major NZ bank. New Zealand implemented this through an intergovernmental agreement (IGA) with the US. NZ banks report the relevant account details to Inland Revenue, which forwards them on, rather than reporting directly to the US IRS.

Why Is My Bank Writing to Me About It?

Banks don’t just ask people they already know are American. Banks must screen every customer for indicators of US tax obligations, or another country’s tax residency, under FATCA and CRS alike. That includes things like a US birthplace, a US phone number or address, or standing instructions to transfer funds to a US account. Any of these show up on your file, and the bank has to follow up and ask directly — even if you’ve never had any real connection to the US.

This is why you might get a letter asking about your tax residency, even though you’ve lived in New Zealand your whole life. The bank isn’t accusing you of anything. It’s working through a compliance checklist it’s legally required to complete for its entire customer base.

FATCA vs CRS: Not the Same Thing

This is the part most FATCA explainers miss, and it’s exactly why non-Americans keep getting these letters. CRS (Common Reporting Standard) is a separate, broader framework, developed by the OECD and modelled on FATCA. Instead of covering just the US, though, CRS covers over 100 participating countries(opens in new tab). It’s applied in New Zealand since 1 July 2017.

NZ banks must identify customers who are tax resident in any participating country under CRS, not just the US. They report those accounts to Inland Revenue, which exchanges the information with the relevant overseas tax authority. Dual tax resident of the UK or Australia, say? CRS is why your bank wants to know — completely separate from any FATCA/US question.

In practice, most banks now ask about both FATCA and CRS status in the same self-certification form. That’s part of why the request can look confusing. You might be asked US-specific questions and general foreign tax residency questions side by side.

If You’re a US Citizen or Green Card Holder

US citizens, green card holders, and other US tax residents generally must file a US tax return every year. That’s true even without ever living or working in the US, and even if no US tax ends up owed once foreign tax credits and exclusions apply. This surprises a lot of people. It particularly catches those who became US citizens by birth, including some born in the US to NZ parents.

You may also need to file an FBAR (Foreign Bank Account Report), alongside your US tax return. This applies if your combined foreign accounts exceeded USD $10,000 at any point during the year. It’s a separate requirement from your tax return, with its own penalties for missing it.

Several firms specialise specifically in US tax compliance for Americans living abroad. Given the complexity and potential penalties involved, it’s worth engaging one rather than working through your obligations alone.

What Happens If You Don’t Respond

Banks take non-response seriously. Most NZ banks can — and do — restrict or deactivate the affected accounts or products, if you don’t provide the requested tax residency information. This isn’t a scare tactic. It’s a real operational consequence banks apply to stay compliant themselves, since they can face penalties for failing to collect this information properly.

A Newer Framework Worth Knowing About: CARF

A related, newer framework called CARF (Crypto-Asset Reporting Framework) extends similar reporting obligations specifically to crypto-asset transactions. Major jurisdictions are progressively implementing it. Hold cryptocurrency through an offshore exchange? This is a space worth watching, since crypto-specific reporting is a growing focus alongside the older FATCA and CRS frameworks.

Checklist

• ✅ Confirm whether you’re a US citizen, green card holder, or US tax resident under FATCA
• ✅ Separately consider whether you’re tax resident in any other CRS-participating country
• ✅ Respond to your bank’s self-certification request promptly, to avoid account restrictions
• ✅ If you’re a US person, check whether you need to file both a US tax return and an FBAR
• ✅ Engage a specialist US tax firm if you have US filing obligations, given the complexity involved
• ✅ Keep an eye on CARF if you hold crypto assets through an offshore platform

Common Questions

I’m not American and have never lived overseas — why is my bank still asking? Almost certainly CRS, not FATCA. Banks must screen every customer for both. The request often looks the same regardless of which one actually applies to you.

What if I ignore the request? Your bank can restrict or close the affected accounts until you respond. It’s not worth the disruption to simply ignore it.

Do I have to pay US tax if I’m a US citizen living in NZ? Not necessarily. Foreign tax credits and exclusions often reduce US tax owed to zero. You still generally need to file the return, though, even if nothing is ultimately owed.

Is FATCA the same as CRS? No. FATCA covers US persons specifically. CRS covers tax residents of over 100 other participating countries. Both use similar reporting mechanics, which is why they’re often confused.

Summary

FATCA NZ banks comply with is US legislation requiring foreign financial institutions to identify and report accounts held by US citizens and tax residents. It’s channelled through Inland Revenue, rather than reported directly to the US. But FATCA is only half the picture. CRS has been in force in New Zealand since 2017. It extends similar screening to well over 100 other countries, which is why plenty of non-Americans get the same kind of letter from their bank. Respond to these requests rather than ignoring them. If you’re a US person, get proper advice on your filing obligations, rather than assuming they don’t apply to you just because you’ve never lived there.

Talk to EpsomTax.com About Your International Tax Position

Whether it’s FATCA, CRS, or figuring out whether you have US filing obligations you didn’t know about, this is exactly the kind of question worth getting right rather than guessing.  Contact EpsomTax.com to work through your specific situation. We work with clients who have international tax connections regularly, and can help you understand exactly what applies to you.