What Are CRS and FATCA?

Two systems have quietly transformed international wealth in the last fifteen years, and understanding them dispels one of the most persistent myths in finance: that money can still be hidden offshore. It largely cannot.

What they are

FATCA, the Foreign Account Tax Compliance Act, is a US law from 2010 that requires foreign financial institutions worldwide to identify and report accounts held by US persons to the US tax authority. A bank in Zurich or Singapore reports its American clients to the IRS, or faces penalties.

CRS, the Common Reporting Standard, is the global equivalent, developed by the OECD. Under it, more than 100 countries automatically exchange information about each other's tax residents' financial accounts, every year. A French tax resident's account in Dubai is reported to France; a German's account in Singapore is reported to Germany.

The difference

• FATCA is US-specific and largely one-directional: the world reports to the US.
• CRS is multilateral and reciprocal: participating countries report to each other.

FATCA came first and became the template; CRS turned the idea into a worldwide standard.

Why they matter

Together, these systems have largely ended banking secrecy. Financial accounts, and many structures layered above them including trusts and companies, are automatically reported to the account holder's home tax authority. The era in which wealth could simply be hidden in a foreign account is, for practical purposes, over.

This is the fact behind a crucial point about structuring: an offshore trust or company remains a legitimate tool for asset protection and succession, but it is not secrecy and not a way to avoid tax. It must be fully declared. Anyone selling an offshore structure as a way to hide money from your tax authority is describing tax evasion, which CRS and FATCA make almost impossible to sustain. See Do Offshore Trusts Avoid Tax?