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August, 2013
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  FATCA - New Tax Information Reporting and Withholding Regime  

The Foreign Account Tax Compliance Act (FATCA) is a US law enacted on March 18, 2010, as part of the HIRE Act. Final FATCA regulations were issued January 17, 2013 and provide various clarifications and alignments. Meanwhile, intergovernmental agreements (IGAs) are also being concluded by the US with various Inter Governmental Agreement (IGA) partner countries to eliminate legal barriers and to facilitate execution of FATCA in these partner countries.

FATCA and IGAs were intended to become effective January 1, 2014, but by Notice 2013-43 this has recently been extended with 6 months to July 1, 2014. This give a bit more time to prepare, but immediate action is required now.

FATCA and IGAs impact not only US persons (individuals or entities) but may also necessitate extra disclosure and compliance requirements of non-US entities and individuals. The probable impact of FATCA and IGAs on trusts and investment entities is covered below.

Goal and Key Aspects of FATCA

The purpose of FATCA is to enforce tax compliance by US taxpayers who hold financial assets outside the US, and to ensure that US authorities can identify and collect the appropriate tax from these US persons.

FATCA will achieve this by imposing a new 30% withholding tax on payments of US source income (withholdable payments) to the following parties that do not comply with certain requirements:
  • Foreign (non-US) financial institutions (FFIs) that are not deemed compliant or excepted should register with the IRS as a Participating FFI (PFFI). The FFI registration with the IRS requires the performance of specified due diligence procedures to identify financial accounts held by specified US persons or US-owned foreign entities, annual reporting of certain information about these US accounts, and withholding of 30% on certain pass-through payments. If the FFI remains non-compliant it is called a non-participating FFI.
  • Non-financial foreign entities (NFFEs) should disclose to the withholding agent certain information on any substantial US owners (generally over 10 percent) or should certify that they have no substantial US owners. If an NFFE does not comply, it becomes a recalcitrant account holder;
  • Individuals (US or non-US) should disclose to the withholding agent certain required details of their tax status; if they fail to comply, they become a recalcitrant account holder.
Further details regarding FATCA categorization, requirements and exceptions are given below. Under an IGA concluded by the US with a partner country these requirements are amended to reduce the administrative burden for the parties involved (see IGA section). FATCA will incorporate local AML/KYC documentation practices and will co-exist with other tax laws and reporting requirements.

Withholdable Payments under FATCA

Withholding tax will be imposed on payments including:
  • Payments from interests, dividends, premiums, annuities, etc., and other periodic (FDAP) payments from US sources.
  • Gross proceeds from the sale or disposition of property that can produce interest or dividends from sources within US.
Withholding Agent

All persons, in whatever capacity acting, having the control, receipt, custody, disposal, or payment of any withholdable payment are categorized as withholding agents under FATCA.

A US financial institution (USFI) acting as a withholding agent will need to determine whether an FFI or a NFFE is compliant or non-compliant for withholding purposes while making payments/disbursements. Likewise, an FFI can also be a withholding agent with respect to other FFIs or NFFEs to determine the withholding on any pass-through payments.

Categorization of Entities as FFI or NFFE

FFIs act as intermediaries for investments of US taxpayers. FFIs are therefore considered to be in the best position to identify and report with respect to their US customers. The definition of FFI in the FATCA final regs includes the following 5 categories:
  1. Depository Institution: accepts deposits in the ordinary course of a banking or similar business, including financial lease, trust or fiduciary services;
  2. Custodial Institution: holds as a substantial portion (20% or more) of its business, financial assets for the account of others (custody, broker, related financial services, clearance and settlement);
  3. Investment entity: Class A, B or C (described below);
  4. Specified insurance company: issues or is obligated to make payments with respect to certain cash value insurance or annuity contracts;
  5. Holding company or treasury center as part of a financial group.
An investment entity is an entity:
  1. that primarily (at least 50%) conducts as a business the following activities on behalf of a customer: trading in market instruments, portfolio management, or otherwise investing, administering, or managing funds, for or on behalf of a customer (Class A),
  2. whose gross income is primarily (at least 50%) attributable to investing, reinvesting or trading in financial assets, and the entity is managed (which means any of the activities described in A. are performed on behalf of the managed entity) by an FFI that is a depository institution, custodial institution, specified insurance company or Class A investment entity (Class B), or
  3. that functions or holds itself out as a fund (collective, mutual fund, private equity fund, hedge fund, or similar investment vehicle with an investment strategy of investing, reinvesting or trading in financial assets (Class C). See below for examples and guidance.
Non-Financial Foreign Entity (NFFE)

A NFFE is any foreign entity which is not a FFI. NFFEs have to be classified either as excepted NFFE, active NFFE (see below definitions) or else as a passive NFFE. Such passive NFFEs will have to provide its withholding agent with certain information (name, address, and tax ID number) on any substantial U.S. owners (generally over 10 percent, directly or indirectly), or if none exist they have to provide a certification that the NFFE has no substantial US owners. In case of an IGA this 10% substantial test is normally replaced by the term “controlling persons”, which in practice is 25% or more.

Deemed-Compliant FFIs and NFFEs

The FATCA regulations exclude certain categories of FFIs and NFFEs from these identification and reporting requirements. These are called deemed-compliant FFIs (DC FFIs), which in general present a relatively low risk of being used for tax evasion. In general there are 2 types of DC FFIs:
  • A registered deemed-compliant FFI generally is required to register with the IRS through the IRS portal every three years in order to declare its status as deemed-compliant.
  • A certified deemed-compliant FFI or owner-documented FFI generally is not required to register with the IRS, but will be required to certify to any withholding agent on IRS Form W-8 that it meets the requirements of its deemed-compliant category.
Also under the IGAs, certain categories will be excluded from these requirements.

Requirements of Participating FFIs

An FFI that is not accepted or deemed compliant can comply to FATCA as a participating FFI by registering the FFI at the IRS portal and concluding an “FFI agreement”. The Responsible Officer issues a Certificate that the entity will comply with the various requirements issued in Final Regs (or respective IGAs), which for the Final Regs include the following requirements:
  1. Performing specified due diligence procedures (with detailed thresholds on the average account value and presumptions) on new and existing accounts to identify US accounts, which are financial accounts (holders, investors, customers) held by:
    • US persons (individual, entity, partnership, US trustee), or
    • US-owned foreign entities (substantial US owner >10%)
  2. Annual reporting to the IRS of information on US account holders and the foreign account’s income and assets (new Form 8966). The information required to be reported will include:
    • Name, address, US Tax Identification Number (TIN), account number and account balance
    • If account holder is a NFFE or OD-FFI, also details of its Substantial US owners
    • Income and withdrawals
    • Gross proceeds
  3. Withholding 30% on certain pass-through payments to recalcitrant account holders and non-participating FFIs; after a certain period the FFI must close the foreign accounts of recalcitrant account holders
  4. Documentation and compliance verification by the IRS. A PFFI must appoint a responsible officer (RO) who must establish (and periodically review) a compliance program that includes policies, procedures and processes sufficient for the PFFI to comply with the FATCA requirements. The RO is required to certify that the FFI has complied, to provide details of procedures and to report results and any material failures/events of default. The RO is also required to submit to IRS review, if required, and respond to requests for additional information from the IRS. The RO can assign Point of Contacts (POCs).
Minimum Threshold for Reporting a US Financial Account for FFIs

The FATCA regs set out specific due diligence requirements and tresholds with respect to individual accounts and entity accounts as well for pre-existing accounts and new accounts. All US financial accounts of individuals with an aggregated value of US $50,000 or more must be reported to the IRS. Preexisting entity accounts of US $250,000 or less are exempt from review. Enhanced review is required for high value accounts as of US $1,000,000.

US Indicia

In case in the due diligence process of the FFI an account holder with the following US Indicia is found the person is assumed a US Person:
  1. Citizenship or residency in U.S.;
  2. U.S. place of birth;
  3. U.S. residency address or mailing address;
  4. U.S. telephone number;
  5. any standing instructions to transfer funds to a U.S. account;
  6. any power of attorney or other signatory authority to any person with a U.S. address; or
  7. Whether the account holder has provided any verified “in-care” or “hold mail” address with the U.S.
When persons with US Indicia are identified it is required to cure items 2-7 with specific described counter evidence in order to remain treatment as a non US person.

Guidelines for Trust, Funds and Family-owned Investment Entities

Based on the above categorization, the following entities will probably be considered as FFIs:
  • Mutual funds, hedge funds, or similar funds with an investment strategy of investing, reinvesting or trading in financial assets.
  • A trust which is professionally managed by a trust company or whose investments are professionally managed by investment managers. However, a trust may be considered an NFFE if the trustee is an individual and the investments of the trust are not professionally managed.
  • Family-owned investment entities, including partnerships, if professionally managed by a trust company or family office or if its investments are professionally managed by investment managers. Please note that entities managed by individuals and whose investments are not professional managed are not likely to be considered as FFIs but instead as NFFEs.
This categorization will likely be clarified further in the next few weeks. This categorization is important since an FFI (unless deemed compliant or a IGA Model 1 Reporting FFI) has in general more reporting and documentation requirements (see below) compared to an NFFE.

A trust that is treated as an FFI would have to provide details of its US owners, mandatory beneficiaries (for both each year) and even of its discretionary beneficiaries (in the year of distribution). In case a trust will be classified as an NFFE this detailed information is to be provided for its substantial US owners and beneficiaries (i.e. more than 10%) and under IGAs for controlling persons (i.e. more than 25%).

Owner-Documented FFI or Sponsored FFI

For trusts and investment entities that qualify as FFIs but have solely investments and do not act as intermediaries, there are a few ways to comply and reduce the administrative burden of FATCA and IGAs, including:
  1. Owner-Documented FFI: The entity is not required to register with the IRS, but is required to provide to any withholding agent all required documentation regarding its owners, to certify on IRS Form W-8 that it meets the requirements of its deemed-compliant category. The withholding agent then agrees to report to the IRS (or, in case of a IGA Model 1, to the relevant foreign government) the information required with respect to any specified US persons that own a direct or indirect equity interest in the FFI.
  2. A new “sponsoring/sponsored FFI” mechanism may be applied under which these sponsored FFI entities (trusts, funds) and underlying entities should be deemed compliant provided that the sponsoring FFI (trust company, family office, or the management investment company) is either itself a participating FFI or an IGA Model 1 Reporting FFI, and agrees to report on their behalf the information that the fund, trust or family investment entity would have been required to report under an FFI agreement.
  3. Trustee Documented Trust: The guidance to the IGA provides another facility for trusts that are classified as Investment Entities where the trustee of the trust is an IGA Model 1 Reporting FFI, Participating FFI or Reporting US FI. If in such case the trustee reports all information required with respect to all US Reportable Accounts of the trust, while the trust itself will be treated as a Non-Reporting FFI and will not be required to register with the IRS.
  4. Registration and Reporting support: The trust company, family office, etc can support the trust or the investment company with the FFI registration to the IRS portal and annual reporting based on a service agreement.
These mechanisms and its practicalities are expected to be clarified in more detail in the next few weeks.

IRS Registration Portal
  • The IRS portal will be the primary means for FFIs to interact with the IRS to complete and maintain their FATCA registrations, agreements and certifications. FFIs will be able to register as participating FFIs, sponsoring entities or as limited FFIs or registered deemed compliant FFIs.
  • The portal is accessible to FFIs as of August 19, 2013. For the period August 19 through December 31, 2013, a FFI will be able to access its online account to modify or add registration information. Prior to January 1, 2014 any information entered into the system, will not be regarded as a final submission, but will merely be stored until the information is submitted as final on or after January 1, 2014. Thus FFIs can use the remainder of 2013 to become familiar with the FATCA registration website, to input preliminary information, and to refine that information.
  • On or after January 1, 2014, each FFI will be expected to finalize its registration information by logging into its online account on the FATCA registration website, making any necessary additional changes, and submitting the information as final.
  • As registrations are finalized and approved in 2014, registering FIs will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN).
  • A GIIN will be used as the ID number for satisfying the FFI’s reporting obligations and identifying its status to a withholding agent.
  • The IRS will electronically post the first IRS FFI list with the GIIN by June 2, 2014 and will update the list on a monthly basis thereafter.
  • To ensure inclusion in the June 2014 IRS FFI List, an FFI will need to finalize its registration by April 25, 2014.
Key Dates and Grandfather Rules

The IRS has released Notice 2013-43 in July 2013 extending most of the FATCA deadlines established by the final regulations with 6 months. The revised deadlines are:
  • Agreement with the IRS: Effective date will be June 30, 2014 (this was December 31, 2013), for all participating FFIs that apply and receive a GIIN prior to July 1, 2014 (this was Jan 1, 2014). It is recommended to file before 25 April 2014 to receive the GIIN in time (see also above).
  • New account due diligence procedures commences July 1, 2014; accounts maintained prior to July 1, 2014 are pre-existing accounts.
  • Account holder documentation is delayed until June 30, 2016 for other than prima facie FFIs and high value individual account holders.
  • The first reporting year is 2014 instead of 2013 previously. The deadline of information reporting of US accounts on Form 8966 on this FY 2014 is March 31, 2015.
  • Commencement of withholding: will not be required on foreign pass-through payments or on gross proceeds from sales or dispositions of property before January 1, 2017.
  • The QI Agreement that would otherwise expire on 31 December 2013 will be automatically extended until 30 June 2014.
Note: These dates are for compliance with FATCA reporting and the commencement of withholding in general. There are different timelines for reporting different thresholds starting from $50,000 and also for different types of accounts (existing, new, etc.).

Various grandfather rules apply. The most important are:
  • Obligations outstanding on June 30, 2014 are exempt from FATCA withholding.
  • Certain obligations that may give rise to dividend equivalent or foreign pass-through payments under future regulations once issued are also exempted, provided that these obligations are outstanding six months prior to the release of implementing regulations.
Inter Governmental Agreements (IGA) and their Implications

FATCA has raised a number of issues, including that FFIs established in some countries may not be able to comply with reporting, withholding, and account disclosure requirements because of legal restrictions. Eight countries have made joint statements in 2012 to enter into Intergovernmental Agreements (IGA), with the following objectives.
  • Enhances compliance and facilitates enforcement to benefit all parties
  • Addresses legal impediments to compliance, such as data privacy, bank secrecy laws, etc.
  • Simplifies implementation and reduces costs
In recent months, the UK, Mexico, Denmark, Ireland, Norway, Spain, Germany (all Model 1) and Switzerland and Japan (both Model 2) have concluded IGAs to facilitate FATCA disclosure and reporting. The US announced that it is in the process of finalizing IGAs, or is actively engaged in dialogue and working on exploring options for IGAs, with 50 countries (such jurisdictions include, among many others, the Cayman Islands, Guernsey, Jersey, Luxembourg, the Netherlands and Singapore).

Key IGA Model 1 features

  • FFIs in IGA Model 1 countries are called IGA model 1 Reporting FFI and treated as deemed compliant as long as they are fulfilling their obligations. There is also no Responsible Officer.
  • IGA model 1 Reporting FFIs are not required to conclude a PFFI agreement, but still required to register on the IRS portal to obtain a GIIN.
  • FFIs to disclose information on its financial account holders to the local tax authorities, subsequently these local authorities to pass the information to the IRS.
  • No withholding tax applicable as long as FFIs are fulfilling their obligations under IGA.
  • The substantial owner test is “controlling,” which means 25% (instead of 10% under FATCA).
  • IGA Model I in principle includes a reciprocal arrangement of collection and automatic exchange of information for residents in the partner countries.
Model 2 IGA has different features, amongst other it requires to comply to the terms of an “FFI agreement” with the IRS, also direct reporting to the IRS and it does not contain reciprocity.

Guidance registration for FFI resided in IGA country

Notice 2013-43 issued in July 2013 2013 that is extending most of the FATCA deadlines with 6 months, also provided among others following guidance for IGAs:
  • Verification of a GIIN is not required for a Model 1 Reporting FFI prior to January 1, 2015. Model 1 Reporting FFIs will be able to register and obtain a GIIN beginning on January 1, 2014 but will have additional time beyond July 1, 2014 to register and obtain a GIIN to be included in the FFI list before January 1, 2015.
  • Notice 2013-43 also includes guidance for FFIs resident in a jurisdiction that has signed an IGA, but which IGA is not yet in force because the jurisdiction has not yet completed the necessary internal procedures to implement the IGA. If such jurisdiction is listed on a specified Treasury website, the FFI should register under FATCA as if the IGA is in force.
More countries are expected to eventually enact laws like FATCA, which would have similar obligations.


FATCA: Foreign Account Tax Compliance Act
HIRE Act: Hiring Incentives to Restore Employment Act
FFI: Foreign Financial Institution
NFFE: Non-Financial Foreign Entity
USFI: United States Financial Institution
IRS: Internal Revenue Service


US Account:
  • Any financial account held by one or more specified US persons or US-owned foreign entities, with certain exceptions.
Financial Account:
  • Depository account
  • Custodial account
  • Equity or debt interest in a financial institution
  • Insurance and annuity contracts (some are excluded)
Foreign Financial Institution (FFI)
  • See detailed definition and categorization above
Non-Financial Foreign Entity (NFFE)
  • Any foreign entity which is not a foreign financial institution
Excepted NFFEs
  • Include publicly traded corporations and affiliates, territory NFFEs that are directly or indirectly wholly owned by bona fide U.S. territory residents in the NFFE’s country of organization or active NFFEs.
  • These types of entities generally will not be likely vehicles for U.S. persons to hide their assets because of the nature of their activities.
Active NFFEs
  • Entities that conduct an actual business activity other than holding assets that produce investment income such as interest, dividends, rents, etc.
  • Any entity may be classified as an Active NFFE if:
    • Less than 50 percent of its gross income for the preceding calendar year is passive income; and
    • Less than 50 percent of the weighted average percentage of assets (tested quarterly) held are assets that produce or are held for the production of passive income.
Passive NFFEs
  • Any NFFE that is not otherwise excepted or active NFFE will be a passive NFFE and must provide withholding agents with a certification regarding its substantial U.S. owners (if any) , or if none exist, with a certification to that effect.
Recalcitrant Account
  • Fails to comply with reasonable requests for required information necessary to determine if the account is held by a US person;
  • Fails to provide the name, address, and TIN of each specified US person and each substantial US owner of a US owned foreign entity; or
  • Fails to provide a waiver of any foreign law that would prevent an FFI from reporting the required information to the IRS.
US Person
  • A citizen or resident of the United States
  • A domestic partnership
  • A domestic corporation
  • Any estate (other than a foreign estate within the meaning of 7701(a)(31)), or
  • Any trust if:
    • A court within the United States is able to exercise primary supervision over the administration of the trust, and
    • One or more US persons have authority to control all substantial decisions of the trust
    • Any other person that is not a foreign person.

The rules and procedures in the IRS notices may change in the final regulations. This document is prepared for general information purposes only. Amicorp Group does not provide tax or legal advice to its clients. Any opinions contained herein should not be construed or interpreted as advice provided by Amicorp Group.

For more information or clarifications on FATCA, please write to:
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This document is prepared for general information purposes only. Amicorp Group does not provide tax or legal advice to its clients. Any opinions contained herein should not be construed or interpreted as advice provided by Amicorp Group.