Whether you are based in the US or not, it’s likely you will be touched by FATCA, says our expert.
It’s been a scare story in the ex-pat and financial community for years now, but today it all becomes official: FATCA is here.
Enacted in 2010, FATCA – the US Foreign Account Tax Compliance Act - is an anti-avoidance tax measure designed to prevent US citizens from “hiding” income and assets overseas. It requires financial institutions to use enhanced due diligence procedures to identify US citizens who have invested in either non-US financial accounts or non-US entities. Those foreign entities and their home tax jurisdictions must comply with stringent and detailed requirements back to the US Internal Revenue Service (IRS).
Quite broad in its application, and certain to have a far-reaching impact on not only US-based companies but also companies with US assets or clients, FATCA can have adverse tax and commercial consequences if not adequately addressed – including a withholding tax rate of 30% on US-sourced income where an entity does not comply with the reporting regime.
FATCA requires all foreign financial entities, or FFIs, to be registered with the US Internal Revenue Service (IRS) showing their FATCA status, which means accounts need to be in order. To ensure FATCA compliance for US citizens, many jurisdictions around the world have been bringing their own regulations up to speed, too, either by adopting similar measures or signing Intergovernmental Agreements (IGAs) with the US Treasury, thus instating FATCA as local legislation. IGAs have the added bonus of facilitating financial info exchange between governments.
In fact, the OECD issued a model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS) in February this year, in large part due to FATCA and active campaigns of voluntary disclosures and legal procedures. The signatory countries to this voluntary agreement are growing.
A large majority of businesses globally will be impacted in one way or another, either directly with a need to comply under FATCA, or indirectly as an entity’s status under FATCA will need to be provided to intermediaries or financial institutions
To make sure you’re FATCA-compliant, you need to undertake impact assessments, budget allocations and requirements mapping – and, of course, all to IRS standards and with all compliance assured. Many of those affected have turned to third party experts to help reduce the risk of non-compliance.
However you plan to tackle it – and you should have a plan well in place by now – there’s no hiding from FATCA from this point on.
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.