All non-U.S. Financial Institutions ('FIs') must
identify their U.S. tax resident accountholders to the IRS or face
a 30% withholding tax on gross payments from U.S. payors.
The Inter-Governmental Agreement ('IGA') between the
Cayman Islands and the U.S. is a pact to introduce legislation in
the Cayman Islands requiring FIs to report U.S. tax resident
accountholders to the Cayman Islands Tax Information Authority
("TIA"). In turn, the TIA will pass that information to
the Internal Revenue Service ('IRS'). Cayman Islands FIs
are exempt from FATCA withholding tax until 1 January 2015 (by
virtue of the above mentioned IGA).
The following Cayman Islands FIs are required to report their
U.S. tax resident accountholders to the TIA:
Investment Entities (which includes certain types of fund);
Certain types of Insurance Companies
Various FI's may be exempted, for example, where they are
small or have a sponsor which has registered on their behalf.
Registration and GIIN
From 1 January 2015, the withholding tax will apply. FI's
must register as a Registered Deemed-Compliant FFI on the IRS FATCA
Registration Portal before this date.
Upon registration the FI will receive global intermediary
identification number ("GIIN"). FIs will
thereafter need to provide payors with said GIIN to ensure they are
not subject to the withholding tax.
DD can be performed by the FI or a delegated third party.
-Accounts existing at 30 June 2014
Due diligence ('DD') must be performed on such
Accounts up to $50,000 for individuals and up to $250,000 for
entities are exempted from the due diligence requirements.
By 30 June 2015 FIs must review their electronic databases for
indications that an accountholder is a U.S. tax resident
Nationality or residence status;
Current residence and mailing addresses on file;
Current telephone number on file;
Any standing instruction to transfer funds;
Whether there is an "hold mail" address; and
Whether there is any power of attorney or signatory
If the electronic databases would not reveal this information
the FI must review its paper files for all accounts over $1
By 30 June 2016 FIs must review their files to determine if the
U.S. tax resident;
Non-U.S. entity controlled by U.S. tax residents; or
-Accounts opened after 30 June 2014
DD (to identify reportable accounts) must be undertaken by FIs
upon or prior to opening the account. Accounts with balances under
$50,000 are exempt.
The FI must obtain a self-certification from the accountholder
stating whether or not he/she is a U.S. tax resident. The FI must
attempt to corroborate and cross reference the
Again, the FI must obtain a self-certification if the
A U.S. tax resident;
A Non-U.S. entity controlled by U.S. tax residents; or
A Nonparticipating FI
A self-certification or other evidence cannot be relied on if
the FI has actual or constructive knowledge that the assertion is
incorrect or unreliable.
Self-certification is unnecessary where the where the
accountholder's status can be determined from a GIIN
Reporting timeline and Tax Information Authority
The DD should have identified whether its account holders
(i) U.S. tax residents; or
(ii) Non-U.S. entities controlled by U.S. tax residents.
In 2014, FIs must report the identity and account balance (or
value at year end) of such accountholders. FIs must also report any
payments made to Nonparticipating FIs
In 2015, information on gross income credited to custodial and
depository accounts is required
In 2016, information on proceeds of property sales or
redemptions credited to custodial accounts is required.
The required timing of these reports will be set out in the
forthcoming Cayman Islands legislation implementing the Cayman
FATCA Action Plan
Cayman Islands entities
Identify whether the entity will qualify as a Reporting FI.
Identify whether the entity could potentially suffer FATCA
withholding tax – i.e. will it have any income paid directly
or indirectly from a U.S. payor.
If the entity is a Reporting FI:
Register on the IRS FATCA Portal to obtain a GIIN.
Implement due diligence without further delay
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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On September 30, 2016, the VAT authorities confirmed that VAT shall apply to directors' fees.
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