Financial institutions will face a greater burden of information reporting for clients who are US citizens and hold assets in South Africa.
This is as a result of the Foreign Account Tax Compliance Act (FATCA). "The purpose of the new Act is to ensure that the US Internal Revenue Service can identify and collect the appropriate tax from US persons holding financial assets outside the US," says Hylton Cameron, Associate Director at Grant Thornton.
The Act will place a significantly increased burden on any non-US Foreign Financial Institution such as banks, funds, asset managers and insurance companies, who must indentify, document and report on US persons' assets.
The key challenge now is for banks to ensure that they comply with FATCA's regulations and that they are fully aware of the associated implications and obligations.
"The identification and documentation requirements for customers will become considerably more demanding with the burden of proof residing with financial institutions," says Cameron.
Account holders who do not comply with this legislation may be subject to additional tax charges, as they may have to pay a 30% withholding tax on US source payments which include interest and dividends. It will possibly also affect investment management activities.
"Any firm that accepts deposits, holds financial assets for the account of others or is engaged in investing or trading securities or any interest in such securities falls potentially within the FATCA's scope. This is a major change to the information reporting and withholding tax regime and imposes new far-reaching compliance obligations," says Cameron.
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