Switzerland and the US sign updated FATCA agreement – Impacts for US taxpayers in Switzerland
In a significant move towards financial transparency and cooperation, the United States and Switzerland have recently agreed on a new Foreign Account Tax Compliance Act (FATCA) agreement. This agreement, signed on 27 June 2024, marks a shift from the previous Model 2 to Model 1, which allows for an automatic mutual exchange of financial account data between the two nations. The change is expected to come into effect in 2027.
Individual taxpayers and financial institutions of both countries need to be aware of these changes and their implications. Both jurisdictions will have greater visibility on the accounts of financial institutions and private individuals, highlighting the importance of remaining compliant on all tax filing and asset reporting obligations.
The Foreign Account Tax Compliance Act (FATCA) is a set of US regulations that requires foreign financial institutions to disclose information on US accounts to the Internal Revenue Service . Since 1 January 2014, FATCA has been applied worldwide.
The implementation of FATCA in Switzerland was previously based on Model 2, under which Swiss financial institutions disclosed account details directly to the US tax authority with the consent of the US clients concerned. However, under Model 2, account data was only transmitted from Switzerland to the United States.
The new agreement, signed by United States Ambassador Scott C. Miller and Swiss Ambassador Nicole Krenger, Head of the Tax Division at the Swiss State Secretariat for International Finance (SIF), introduces a switch from Model 2 to Model 1.
Under Model 1, the tax authorities of both countries will mutually exchange information on account data automatically. This means that Switzerland will also receive account data from the United States in the future. Swiss financial institutions will no longer provide the required data to the US authorities, but rather to the Swiss Federal Tax Administration (FTA), which will then transmit it to the Internal Revenue Service (IRS) in the US.
The shift to Model 1 is expected to increase financial transparency between the US and Switzerland. It helps to address administrative impediments, reduces burdens for Swiss financial institutions, and improves international tax compliance. This is a significant step towards improving international tax compliance and strengthening ties between the United States and Switzerland. It is essential for citizens/tax residents and financial institutions of both countries to understand these changes and their implications.
Separate from the impact on Swiss financial institutions, US citizens/tax residents living in Switzerland may see more scrutiny around reporting of financial assets held in the other country.
As the US-Swiss Model 1 FATCA agreement comes into force on 1 January 2027, it further reinforces the need for Americans living and working in Switzerland to remain compliant with their US tax affairs. This includes both their annual US income tax return (Form 1040) as well as their Foreign Bank & Financial Accounts “FBAR” (FinCEN 114).
Deloitte’s dedicated team of tax professions based in Switzerland helps US persons living in Switzerland navigate the ever-increasing challenges of US tax compliance and is ready to support you.
If you would like to know more about this topic and receive the support of our team of experts in this field, please reach out to our key contacts below.
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