FATCA (Foreign Account Tax Reporting Act) is an act on compulsory tax reporting of foreign accounts. This act requires US citizens and other taxpayers to inform the US Internal Revenue Service (IRS) of all details of their financial accounts in other countries and from foreign financial institutions about such clients. The main purpose of FATCA is to prevent tax evasion by US taxpayers and increase federal tax revenues.
US tax law requires US residents to pay income tax on income from all sources, both in the United States and abroad. In this regard, financial institutions outside the United States, when opening an account for legal entities and individuals, must determine whether they are US residents and, if confirmed, provide all information about bank accounts and financial transactions to the US Internal Revenue Service.
By the Decree of the President of the Republic of Azerbaijan dated September 4, 2015, the “Agreement between the Government of the Republic of Azerbaijan and the Government of the United States of America on Improving Compliance with International Tax Compliance Rules and I the application of the Foreign Account Tax Reporting Act (FATCA)” was signed. The document came into force on November 5, 2015.
In order to fulfill the requirements of the signed Agreement, the Tax Code includes the rights and obligations of financial organizations, including all banks of the republic, and their responsibilities in these matters under the listed items. (Articles 13.2.66, 13.2.67, 36.7, 36.8, 53.8, 60, 60.3, 76 and 76-1).
More information about FATCA can be found on the official website of the IRS or on the website of the Ministry of Taxes of the Republic of Azerbaijan.
CRS (Common Reporting Standard) - The Common Reporting Standard was created to regulate the procedure for collecting data on the accounts of foreign persons in financial institutions in different countries, as well as for tax accounting and automatic exchange of information with the countries of residence.. This standard was developed in 2014 by the Organization for Economic Cooperation and Development (OECD).
The exchange of financial information is based on the Council of Europe and the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Azerbaijan signed the Convention in 2003 and the Protocol amending it in 2014. The Convention allows for the exchange of information for tax purposes with more than 100 countries.
"Directions of tax reforms in 2016", approved by the Decree of the President of the Republic of Azerbaijan dated August 4, 2016, provides for the conclusion of intergovernmental agreements on the automatic exchange of financial information with other countries in order to ensure transparency of taxation of income outside the country.
In accordance with this Order, a statement was signed on the conclusion of a “Multilateral Agreement on the Automatic Exchange of Information on Financial Accounts between Competent Authorities”, according to which the implementation of CRS in Azerbaijan began on July 1, 2017. From this date to determine the status of a tax resident, legal entities and individuals who applied to financial institutions must fill out a self-assessment questionnaire.
Detailed information on CRS can be found on the official website of the OECD or on the website of the Ministry of Taxes of the Republic of Azerbaijan.