Cayman Islands: Cayman Islands Signs FATCA IGA With US

Last Updated: 2 December 2013
Article by Martin Livingston, Tim Frawley and Alasdair Robertson

Further to our prior client updates on the US Foreign Account Tax Compliance Act ("FATCA"), we are pleased to confirm that on 29 November 2013 the Cayman Islands signed a Model 1(b) (i.e. non-reciprocal) intergovernmental agreement with the United States ("US IGA"). 

The governments have also agreed to replace the existing bilateral tax information exchange agreement entered in 2001 with an updated version, addressing the automatic information exchange requirements introduced by the US IGA and FATCA. 

The Cayman Islands government's release can be found here

A copy of the US IGA can be found here

Although the US IGA has been executed, it will still need to be brought into force in both jurisdictions in accordance with applicable protocols, before coming into effect. Enabling legislation is in the process of being drafted for the Cayman Islands, which will assist in removing any issues of confidentiality when complying with reporting requirements. 

The net effect of the US IGA is that Cayman Islands financial institutions ("FIs") will be treated as if they were participating foreign financial institutions ("Participating FFIs") for the purposes of FATCA, even where members of an FIs' affiliated group may not be. 

We shall shortly be producing comprehensive legal guides in relation to each major industry that is impacted by FATCA. In the meantime, please use the following links for further information on: 

Investment Funds

Structured Finance Products; and 

Insurance Companies

In the interim, the key points for consideration are as follows: 

Purpose 

FATCA was enacted to require foreign entities to report information on foreign assets held by US persons. Failure to report the required information would result in the imposition of a punitive 30% withholding tax on qualifying US source payments. 

FATCA, in conjunction with the US IGA, requires Cayman FIs to report information annually to the Cayman Islands Tax Information Authority ("Cayman TIA") on financial accounts that are held by US individuals or entities controlled by Specified US Persons. The Cayman TIA will then forward the information to the US Internal Revenue Service ("IRS") on an annual basis. 

In addition, certain non-financial foreign entities ("NFFEs") which do not meet the definition of an FI, may separately be required to self-certify their status to withholding agents (using IRS Form W8 or similar) so as to avoid the application of withholding tax. 

Cayman FIs that comply with the IGA and enabling legislation will be treated as satisfying the due diligence and reporting requirements of FATCA. As such, those FIs will be 'deemed compliant' with the requirements of FATCA, will not be subject to withholding, and will not be required to close recalcitrant accounts (i.e. accounts held by clients that refuse to provide, or allow the FI to provide, the information). 

Further, the US IGA categorises FIs as either "Reporting FIs" or "Non-Reporting FIs". By default, all FIs are Reporting FIs, unless they qualify as Non-Reporting FIs. The categories of Non-Reporting FIs are specified in Annex II to the US IGA. 

For each US Reportable Account that it maintains, a Reporting FI is required, amongst other things, to obtain and ultimately report the name, address, and TIN of each Specified US Person that is a holder of such account (subject to the application of look-through provisions), the account number and certain financial information in relation to the account (e.g. account balance).

Scope 

An FI includes a Custodial Institution, Depository Institution, Investment Entity, or a Specified Insurance Company, which in practice will cover banks, custodians, nominees, trust companies and trusts, investment funds (including hedge and private equity funds), administrators, managers and advisers, as well as certain structured finance products and insurance companies.

Exclusions 

Annex II of the US IGA classifies certain entities as "exempt beneficial owners" and "deemed compliant FIs", which are collectively regarded as "Non-Reporting FIs", as well as describing certain excluded accounts (e.g. for retirement and pension plans or term life insurance contracts). 

Among the exclusions, Annex II contains specific conditions to be satisfied for Investment Managers and Advisers, Investment Entities (e.g. Sponsored Entities) and Trustee Documented Trusts. We shall elaborate on the Annex II exclusions under the industry specific legal guides. 

A Non-Reporting FI does not need to register on the IRS FATCA registration website, save for certain Sponsored Investment Entities that may have US Reportable Accounts. As such, Annex II should be reviewed very carefully before a client determines whether it should register. 

A Non-Reporting FI will however need to provide certification (e.g. via an IRS Form W8 or similar) to the relevant withholding agent as to its deemed-compliant status.  

Annex I of the US IGA also includes certain categories of account that are not treated as US Reportable Accounts, i.e. such accounts that do not need to be reviewed, identified or reported include: 

(a) a pre-existing individual account with less than US$50,000 as of 30 June 2014; and 

(b) a pre-existing entity account with less than US$250,000 as of 30 June 2014. Further, such pre-existing entity account does not need to be reviewed, identified, or reported as a US Reportable Account until the account balance or value exceeds US$1,000,000. 

Registration

As a first step, Reporting FIs will need to register with the IRS and obtain a Global Intermediary Identification Number ("GIIN"). Withholding agents that verify the GIIN for Reporting FIs are not required to withhold tax on payments to those FIs. 

Registration can be completed through the IRS FATCA registration online portal via this link

Alternatively, you may submit a hard copy Form 8957 to the IRS, but the IRS have noted that such forms will take longer to process and may not be the most reliable form of registration.

FATCA Procedures 

A Reporting FI will comply with FATCA and the US IGA where it; 

(a)     complies with the applicable registration requirements on the IRS FATCA registration website; and 

(b)     identifies US Reportable Accounts and reports annually to the Cayman TIA specified information in relation to those US Reportable Accounts. 

A Reporting FI which fails to comply with paragraph (b) above is not subject to withholding unless it is regarded by the IRS as a Non-Participating FI, under the terms of the IGA. 

A "US Reportable Account" is any Financial Account maintained by a Reporting FI and held by one or more Specified US Persons or by a non-US entity with one or more 'controlling persons that is a Specified US Person. 

A "Specified US Person" is generally defined as a US Person that is not otherwise a listed corporation, member of an expanded affiliated group (of the FI), a US federal or state agency, any tax exempt organisation (entity or other arrangement) under the Code; and an entity registered with the Securities and Exchange Commission. 

A "US Person" is defined as including; 

(a)     a US citizen or resident individual; 

(b)     a US partnership or corporation; or 

(c)     a trust, if a US court has jurisdiction over the administration of the trust, and one or more US Persons have the authority to control all substantial decisions of the trust. 

Certain indicia included under Annex I must be used to determine the US status of such persons. 

The term "Controlling Person" is to be interpreted in a manner consistent with the Financial Action Task Force Recommendations, which essentially provide that; 

(a)     for "legal persons", such as a company, control depends on the ownership structure of the company and may be based on a threshold, e.g. any person owning more than a certain percentage of the company (e.g. 25%); or 

(b)     for "legal arrangements" (e.g. trusts) persons exercising ultimate effective control over the trust which may include the settlor, the trustee(s), the protector (if any), the beneficiaries or class of beneficiaries, without reference to thresholds. 

Timelines 

The IRS FATCA registration portal has been opened for Reporting FIs to acquaint themselves with the content. Any information entered through the portal up to 31 December 2013 is not final and can be modified. 

From 1 January through 25 April 2014, Reporting FIs may finalise their registration information through the portal (or manually through submission of Form 8597 to the IRS) to obtain a GIIN by 30 June 2014, and to avoid the imposition of withholding tax from 1 July 2014. 

However, it is important to note that withholding agents are not required to verify GIINs on payments made prior to 1 January 2015 where the payee is a Model 1 Reporting FI. Accordingly, Cayman Reporting FIs can effect registration through to the end of 2014 and, if necessary, may self-certify their status to withholding agents after 1 July 2014 to avoid withholding. 

Action Points

As registration will be required at some point during 2014 and due diligence regarding account holders will need to be completed in 2014 and 2015, clients should be taking the following steps as soon as possible: 

(a)           Determine the person who will be responsible for FATCA compliance; 

(b)          Determine if FATCA compliance will be handled internally or outsourced; 

(c)           Identify whether entities are FIs or NFFEs; 

(d)          Identify whether any exclusions under Annex II of the US IGA may apply; 

(e)          Consider registration of each Reporting FI with the IRS, if applicable; 

(f)           Classify existing account holders and commence information remediation as required; and 

(g)          Develop and implement updated on-boarding procedures for new account holders on or after 1 July 2014 

The US IGA expressly notes that Reporting FIs may use third party service providers to fulfil their obligations under Cayman Islands law. 

Our affiliate, MaplesFS, has established a FATCA team and developed a suite of products over the last two years to assist clients with their FATCA obligations. The MaplesFS FATCA services include classification of accountholders and accounts, remediation and validation of Reportable Accounts, implementation of new on-boarding procedures and reporting. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Martin Livingston
Tim Frawley
Alasdair Robertson
Similar Articles
Relevancy Powered by MondaqAI
Harneys
Maples and Calder
Maples and Calder
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Harneys
Maples and Calder
Maples and Calder
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions