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FATCA

What is FATCA?

FATCA stands for The Foreign Account Tax Compliance Act (FATCA) which was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA creates a new information reporting and withholding regime for payments made to certain foreign financial institutions and other foreign entities. The FATCA rules generally become effective with respect to certain payments made on or after January 1, 2014.

 

What is the intent of FATCA?

FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to U.S. persons that may be investing and earning income through non-U.S. institutions. While the primary goal of FATCA is to gain information about U.S. persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met.

 

Who does FATCA impact?

While FATCA certainly affects U.S. withholding agents and U.S. multinational companies, the greatest impact will likely be to Foreign Financial Institutions (FFIs).

 

What are the withholding requirements under FATCA?

In general, a withholding agent is required to withhold 30% on a withholdable payment made to a Foreign Financial Institution (FFI) or to a Non-Financial Foreign Entity (NFFE), unless the FFI or NFFE meets certain requirements. In addition, an FFI must withhold 30% on any pass thru payment it makes to a recalcitrant account holder, as well as to payments it makes to another FFI unless that FFI meets certain requirements.

 

What is a withholding agent?

An individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies that has control, receipt, custody, disposal, or payment of any withholdable payment.

 

What is a U.S. person?

The term ”United States person” means:

  • A U.S. citizen (including dual citizen)

  • A  U.S. resident alien for tax purposes

  • A domestic partnership

  • A domestic corporation

  • Any estate other than  a foreign estate

  • 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 United States persons have the authority to control all substantial decisions of the trust

  • Any other person that is not a foreign person.

 

What information will a foreign financial institution report to the IRS regarding U.S. accounts?

1) The name, address and U.S. tax identification number (TIN) of each account holder that is a specified U.S. person;

2) In the case of any account holder that is a U.S. entity with one or more U.S. owners, the name, address and TIN of each substantial U.S. owner of such entity;

3) The account number;

4) The year-end account balance or value; and

5) Gross receipts and gross withdrawals or payments from the account.