The US Foreign Account Tax Compliance Act ("FATCA") is
focused on the prevention of tax evasion by US persons and will
have significant global impact on businesses both within and
outside the United States. All foreign financial institutions
("FFIs"), including hedge funds and private equity funds,
that have any material direct or indirect interests in US
investments will need to adhere to FATCA or risk suffering US
withholding tax at 30%.
The Cayman Islands Government announced on 15 March 2013 that it
has decided to pursue a Model 1 inter-governmental agreement
("IGA") with the United States for the implementation of
FATCA and to enter into a similar arrangement with the United
Kingdom. In its announcement the Cayman Islands Government pledged
its commitment to positive engagement in international tax
Once the IGA has been entered into between the Cayman Islands
Government and the United States and the Cayman Islands has passed
implementing legislation and regulations, and provided that those
implementing laws and regulation are complied with:
Cayman FFIs will be automatically treated by the US Internal
Revenue Service ("IRS") as satisfying FATCA and will (on
application) be issued where applicable with a Global Intermediary
Identification Number ("GIIN");
There will be no requirement for Cayman FFIs to enter
into an FFI agreement with the IRS;
Cayman FFIs will be authorised to disclose the necessary
information to Cayman authorities (for onward transmission to the
IRS) without the need to obtain specific consents from account
The due diligence requirements to identify US investors should
be more closely aligned to the requirements under the existing
Cayman AML/KYC rules; and
Cayman FFIs will not be subject to withholding under FATCA on
payments they receive and will not be required to withhold on
passthru payments they make to a recalcitrant account holder or
Cayman FFIs should not have to close the account of a
recalcitrant account holder.
The Cayman Islands has a history of conducting business with
other highly regulated jurisdictions. The decision to sign up to
the IGA will ensure that services provided from the Cayman Islands
will continue to dovetail with service provided from such
jurisdictions. As a result the use of Cayman Islands financial
services will provide a low legal and compliance risk for service
providers in other jurisdictions which also sign up to Model 1 IGAs
for the implementation of FATCA and its regulations.
Dillon Eustace advises asset managers, banks, insurers, pension
funds, supranational organisations, prime brokers, administrators,
custodians, securities lending agents and others in relation to all
aspects of the asset management and funds industries. We will
continue to keep you updated on developments in Cayman Islands
legislation and regulations covering the implementation of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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