At MCB Group our priorities are to safeguard the health
and safety of our employees and customers while continuing
with vital banking services.
FATCA stands for the Foreign Account Tax Compliance Act. It refers to provisions included in the Hiring Incentives to Restore Employment Act signed into law on March 18, 2010 and effective January 1, 2013. It adds a new chapter to the Internal Revenue Code (Chapter 4) aimed at addressing perceived tax abuse by U.S. persons through the use of offshore accounts. The new rules require foreign financial institutions (FFI’s) to provide the Internal Revenue Service (IRS) with information on certain U.S. persons invested in accounts outside of the U.S. and for certain non-U.S. entities to provide information about any U.S. owners.
Any entity making a payment of U.S. source income must consider whether it is subject to FATCA. FATCA may apply to both financial and non-financial operating companies. Due to this breadth, FATCA impacts virtually all non-U.S. entities, directly or indirectly, receiving most types of U.S. source income, including gross proceeds from the sale or disposition of U.S. property which can produce interest or dividends.
U.S. entities, both financial and non-financial, that make payments of most types of U.S. source income to non-U.S. persons will also be impacted as they may now be required to withhold a 30% tax on that income paid to a non-U.S. person under FATCA. This will require the U.S. entities to maintain documentation on those non-U.S. persons and also track how those persons are classified under FATCA.
A foreign financial institution (FFI) is any non-U.S. entity that:
- Accepts deposits in the ordinary course of a banking or similar business,
- As a substantial portion of its business, holds financial assets for the account of others, or
- Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities, or
- An insurance company that issues annuities or cash value insurance policies.
- Generally non-U.S. entities such as banks, broker/dealers, insurance companies, hedge funds, securitization vehicles, and private equity funds will be considered FFIs.
In general, an FFI will enter into an agreement (referred to as “FFI Agreement”) with the U.S. Department of Treasury (U.S. Treasury) by which the FFI can avoid FATCA withholding on payments it receives (and become a participating FFI). Generally, an FFI Agreement requires a determination of which accounts are “United States accounts” (see # 5), compliance with verification and due diligence procedures, annual reporting on those United States accounts to the U.S. Treasury (see below), compliance with additional IRS reporting requests and withholding of 30% where applicable (e.g., recalcitrant account holders, non-participating FFIs).
FFI’s that enter into an FFI agreement with the IRS will need to report the following information on their U.S. accounts:
- The name, address and Taxpayer Identification Number (TIN) of each account holder which is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address and TIN of each substantial United States owner of such entity;
- The account number;
- The account balance or value at year end (to be confirmed by Regulations); and
- Gross dividends, interest and other income paid or credited to the account (timing will be determined in the FFI agreement).
A non-participating FFI will be subject to 30% withholding on each payment that is routed through a participating FFI.
The IRS will publish a list of all participating FFIs on their website. The List will be published for the first time in the beginning of July 2014 and will be updated on a monthly basis.
A U.S. Account is an account held by a U.S. citizen, U.S. resident or an entity that has a substantial U.S. owner (also referred to as U.S. owned company).
A substantial U.S. owner generally refers to a shareholder who is a U.S. citizen or resident who has a 10% or greater interest, by shares or vote, in an entity.
FATCA imposes three main obligations FFIs:
1. Documentation and Due Diligence
Classify and (where applicable) document all new and existing customers as U.S. taxpayers, non-U.S. taxpayers, or exempt from documentation and/or reporting.
Withhold 30% on withholdable payments being sent to: (a) non-participating FFIs, i.e., FFIs that do not comply with FATCA; and (b) the accounts of recalcitrant clients (i.e., those who fail to provide requested documents and/or information required by Maduro & Curiel’s Bank N.V. for FATCA compliance).
Report annually on:
(a) all U.S. taxpayers who are not exempted;
(b) recalcitrant accounts;
(c) non-participating FFIs;
(d) certain non-financial foreign entities; and
(e) other persons as required under FATCA.
- The name, address and Taxpayer Identification Number (TIN) of each U.S. account holder (in the case of U.S. owned company, the name, address and TIN of each substantial U.S. owner of such entity);
- The account number;
- The account balance or value at year end; and
- Gross dividends, interest and other income paid or credited to the account.
“Withholdable” payments are U.S. sourced payments the IRS sees as posing the risk for potential tax avoidance. They include (a) any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, and other fixed or determinable annual or periodic gains, profits, and income if such payment is from sources within the United States; and (b) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.
U.S. source payment is a payment of income that arises from sources within the U.S. The source of income is determined based on the type of income. The source of compensation income is where the services giving rise to the income were performed. The source of certain income, such as dividends and interest, is based on residence of the payer. The source of income from property is based on where the property is used. Significant additional rules apply.
The FFI Agreement will come into effect on July 1, 2014 or a later date if the FFI registration takes place after July 1, 2014.
This is the requirements to implement procedures that will allow the FFI to collect all required information and documentation from new customers to identify U.S. citizens and residents and to collect the information for reporting under FATCA.
Account holders that became customers of the FFI before July 1, 2014.
Account holders that become a customer of the FFI from July 1, 2014 onward.
Through an electronic search of the FFI’s database based on the U.S. indicia.
FATCA lists seven indicia of U.S. status:
- U.S. citizenship or lawful permanent resident (green card) status;
- A U.S. birthplace;
- A U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box);
- A current U.S. telephone number;
- Standing instructions to transfer funds to an account maintained in the United States or directions regularly received from a U.S. address;
- An “in care of” address or a “hold mail” address that is the sole address with respect to the client; or
- A power of attorney or signatory authority granted to a person with a U.S. address.
- Having one of these indicia does not mean that the account is owned by a U.S. person, only that it must be given closer scrutiny.
Notice 2011-34 provides details of the required documentation associated with each indicia of U.S. status:
U.S. citizenship or lawful permanent resident
U.S. birth place
1. Obtain W-9 or W-8BEN; and
U.S. address (residence, correspondence, or P.O. Box)
1. Obtain W-9 or W-8BEN; and
Instructions to transfer funds to U.S. accounts or directions regularly received from a U.S. address
1. Request W-9 or W-8BEN; and
Only address on file is “in care of” or “hold mail” or U.S. P.O. Box Notice 2011-34 excludes foreign PO Box as US indicia
1. Request W-9 or W-8BEN; and
Power of Attorney or signatory authority granted to person with U.S. address
Request W-9, W-8BEN; or
A joint account which has one U.S. owner is treated as a U.S. account and the entire account is subject to reporting to the U.S. person. The fact that they are not U.S. residents does not make a difference.
A “recalcitrant accountholder” is any accountholder that:
- fails to comply with reasonable requests for information necessary to determine if the account is a United States account;
- fails to provide the name, address and TIN of each U.S. person and each substantial U.S. owner of a U.S. owned foreign entity; or
- fails to provide a waiver of any foreign law that would prevent a foreign financial institution from reporting information required under FATCA.
- The participating FFI must withhold 30% of each incoming payment in the account of the recalcitrant account holder; and
- Accounts held by a recalcitrant accountholder must be closed within a reasonable period of time.
The money that is withheld by a FFI, must be transferred to the U.S. Treasury department.
The FATCA rules require that you ask any U.S. customer to waive their rights under the privacy or secrecy rules so that you can report their information to the U.S. Government. If they refuse to provide this waiver then you are required to close the account.