Brazilian pension funds have started to slowly invest abroad, on
the one hand this is an extraordinary opportunity for
diversification of assets, well above what the internal market can
provide, on the other this is something that requires attention to
the legal obligations and regulations, especially those that relate
to taxes payable. Uncle Sam is watching and has even set a date:
December 31. Ignoring it will not be cheap: a withholding tax of
30% on income and principal, if not complaint , is enough to cause
damage to the fund's performance in which it is applied.
Is not refundable – "Although withholding tax may sound like something refundable, is in fact a penalty, because there is no refund procedure," explains Francine Balbina, Executive Director of DMS Offshore Investment Services, which provides consulting services on governance for offshore investment funds. Francine notes amounts withheld in cases of non-compliance are generally non-refundable.
Francine noted that the first step for the funds considered as Foreign Financial Institution ("FFIS") is to complete your registration with the IRS before the end of this year, next is the fulfillment of other requirements to prove to be operating in accordance with the tax obligations.
All investment funds, Francine continues, that have not registered yet, need to be registered with the IRS (Department of Revenue) as soon as possible if they wish to receive a Global Intermediary Identification Number (GIIN) in time to be included in the list for early 2015.
Brazilian pension funds and cautious investors should certify that the managers of international funds in which they invest are actually meeting the requirements of US tax authorities and other countries, such as the UK.
FATCA, whose full name is Foreign Account Tax Compliance Act in Portuguese free Tax Compliance Act accounts abroad, was approved by the US Congress in 2010, explains François Racicot broadly to allow the US Revenue Service to apply tax laws to people who might somehow be using investments and foreign accounts to hide their income and assets abroad. Investors classified in this situation would be evading thus of its obligations regarding the declaration and payment of taxes due in the US.
According to analysis by Mercer, FATCA has the potential to impose a withholding tax on the financial institutions that receive revenues in the US or even proceeds of assets based there. Therefore, this legislation impacts all financial institutions that invest in US-based assets, regardless of the participation of US citizens, which includes the Brazilian complementary pension funds and that at the time they begin to invest abroad. Because of this, François notes, "this seems like a good time for our leaders the ensure that they are satisfied that the financial institutions that are being considered in the selection process are well prepared to meet the requirements of FATCA."
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