Cayman Islands: FATCA And Cayman Funds

With the first round of US Fatca reporting completed on Friday, 26 June, Cayman Islands Reporting Financial Institutions (RFIs) can now begin their summer relaxation in earnest, having successfully navigated the complex notification and reporting processes.

For many, the process has been all-consuming since 1 January, when Fatca went live, after the US IRS itself had allowed a few implementation delays to enable the global financial industry to catch up on the requirements of the law and to demonstrate good faith efforts in complying.

In March 2015, the Cayman Islands Department for International Tax Co-operation (DITC) announced that it would be launching its Automatic Exchange of Information Portal, thereby putting RFIs on alert to begin their notification and reporting under Fatca and the Intergovernmental Agreements (IGAs). The DITC also announced the extension of the deadlines for notification of Fatca obligations, from March 31 to 30 April, with the reporting deadline set at 31 May 2015.

With technical difficulties besetting the portal in the early stages (it was pulled offline 11-13 May for system updates), the DITC was again forced to twice delay both the notification and reporting deadline. On 11 May, the DITC announced that notifications should be submitted on or before 21 May, and returns should be reported on or before 12 June. Again on 21 May, the notification and reporting deadlines were shifted to 29 May and 26 June, respectively.

BVI has also had "technical problems" with its Fatca portal. Enrolment applications via the BVI Financial Account Reporting System (BVIFARS) was delayed from the original date of 1 June to 30 June and the Fatca reporting deadline was also changed from 30 June to 31 July.

Luxembourg, Ireland and Singapore also extended their Fatca reporting deadlines to 31 July for this first year reporting. For the Cayman Islands, the teething pains appear to have been resolved, and the final reporting process was completed smoothly.

It has been evident in the past few months that many questions still remain about Fatca, particularly among investors with respect to deadlines, due diligence and reporting/notification. These points need on-going education, even beyond the reporting deadlines. Anecdotally, due diligence is still a problem for some fund managers and even some service providers, who still struggle to understand and comply with the necessary documentation that should be submitted.

A key remaining responsibility at the end of this first reporting period is for RFIs and their service providers to pay attention to how they are retaining and storing the documents and records of the information subject to reporting under the IGA. Th is must be stored for a period of six years and should be available to the Tax Information Authority (TIA), in the event of any regulatory inspection or other action.

The respite from Fatca reporting will last only just beyond these summer months. Reporting and notification for UK Fatca begins in 2016, when RFIs must provide information on any UK taxpayers to the TIA. Under the Cayman UK Fatca, completion of due diligence on pre-existing "high-value individual investor" accounts should have already taken place (by the end of June 2015), preparing the way for RFIs to meet their first UK Fatca reports in time for the 31 May 2016 deadline for the years 2014 and 2015.

There is more international tax compliance to be accomplished by year end, with the OECD's Common Reporting Standard (CRS) set to take effect in 2016, which requires that financial institutions report on accounts that individuals and entities hold in jurisdictions that have signed on to the CRS, under their jurisdictional laws.

The Cayman Islands DITC recently signaled its intention to introduce local legislation to implement the CRS by October of this year. By 1 January 2016, new account opening procedures must be in place to record the tax residence of account holders. Cayman RFIs must document all account holders existing on 31 December. It is expected that the deadline for CRS notification to the TIA will be 30 April 2017 and first reporting will be required by 31 May 2017.

Originally published in HFM Compliance on July 2, 2015.

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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