With the Foreign Account Tax Compliance Act (FATCA) now in full swing, both US and foreign taxpayers are being asked about their FATCA status. Foreign financial institutions (FFIs), such as foreign hedge funds, private equity funds, banks, insurance companies, mutual funds, investment holding companies, and other entities involved in financial services, generally have to comply with the withholding, reporting, and due diligence requirements of FATCA if they receive US source income. FFIs that do not comply with the requirements of FATCA will generally suffer 30 percent withholding on US source investment income allocated to them. US entities making certain payments of US source income to foreign entities have a responsibility as a withholding agent to ensure recipients are FATCA compliant.
IGAs: What you need to know and the latest IGA updates
FFIs or US entities with offshore subsidiaries based in foreign countries and have an intergovernmental agreement (IGA) with the US Treasury must adhere to the FATCA requirements of their countries’ signed IGA. More than 90 countries have signed IGAs or have IGAs treated as in effect with US. In June 2015, the US Treasury finalized IGAs with the following countries:
- South Korea
- United Arab Emirates
Each IGA has its own specific registration and reporting deadlines for FATCA. In addition to IGA country registration, FFIs must also register on the IRS FATCA portal, and FFIs not based in an IGA country should register with the IRS. Upon successful completion of IRS FATCA portal registration, an FFI will receive a unique Global Intermediary Identification Number (GIIN) and will be on an IRS FFI FATCA compliance list that is available to the public.
FATCA reporting and deadlines
Generally for the 2014 tax year, FFIs are required to report the following account information for most US individual and entity account holders:
- Account holder name, address, and identifying number
- Account number
- Account balance and currency
Certain FFIs such as closed-end funds (i.e., mutual funds) are not required to report any information on account holders for the 2014 tax year. Most IGA countries also do not require FFIs with zero reportable accounts to file any FATCA reports.
Model 1 IGA countries, including the British Virgin Islands, Luxembourg, Ireland, and Singapore, extended reporting deadlines to July 31, 2015. Jersey and certain other Model 1 IGA countries allow reporting deadline extensions to July 31, 2015, only if formally requested.
In recognition of this year as a transitional reporting year for FFIs, certain IGA countries, such as the United Kingdom, are allowing FFIs to submit reports after the originally set May 31 reporting deadline if they have reasonable cause. France also has a similar initiative that specifies all FATCA information reports submitted after their extended deadline of July 20, 2015, but prior to Sept. 15, 2015, will be timely reported to the IRS by the French government, although they will be considered late filings subject to penalties. Most other IGA countries also impose late filing penalties for late FATCA information reports.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.