FATCA Updates - June 2013 Publication


What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. This FATCA requirement is in addition to TD F90.22-1, Report of Foreign Bank and Financial Accounts (FBAR).


FATCA requires investment entities to register with the IRS, review their investor base, gather certain documentation, conduct due diligence on their investors and implement new tax information reporting and withholding procedures.


Reporting Requirements

FATCA requires certain U.S. taxpayers who hold foreign financial assets with an aggregate value of more than the reporting threshold (at least $50,000) to report information about those assets on Form 8938, which must be attached to the taxpayer’s annual income tax return.


FATCA will also require certain Foreign Financial Institutions (FFI) to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The reporting institutions will include not only banks, but also other financial institutions, such as investment entities, brokers, and certain insurance companies. Some non-financial foreign entities will also have to report certain of their U.S. owners.


The IRS defines a Foreign Financial Institution as any financial institution that is a foreign entity, other than a financial institution organized under the laws of a possession of the United States.


As of January 2013, only individuals are required to report their foreign financial assets. At a later time, a limited set of U.S. domestic entities also may be required to report their foreign financial assets, but not for tax years starting before 2013.


Registration Portal

The FATCA registration portal will be used to interact with the IRS and will allow institutions to complete and maintain their chapter 4 registrations, agreements and certifications. The portal is expected to be accessible on-line no later than July 15, 2013.


Impact on asset managers:

The IRS released its final regulations on January 17, 2013 and firms must be in compliance by January 1, 2014. There are necessary tasks that must be undertaken throughout 2013 to ensure that firms are prepared for 2014. At minimum, firms should perform the following to prepare for FATCA:

  1. Determine the final FATCA characterization of their investment entities.
  2. Registration of any non-US funds by October 25, 2013.
  3. Update the investor onboarding process.
  4. Consider using third party providers to assist in the process.
  5. Update all applicable documents to reflect new procedures.
  6. Identify which payments may give rise to withholding so that steps can be taken to comply with the documentation requirements and avoid unnecessary liability.

The withholding provisions of FATCA are scheduled to begin in January 2014. Companies should have already begun to assess the FATCA requirements, determine their specific impact and create a customized plan in order to avoid falling behind. Taking a proactive approach to FATCA will ensure that your organization is ready to comply in 2014. The final regulations issued by the IRS allows for the use of third party providers to assist in the FATCA process, and the use of third party providers can save your organization time and can provide structure to your FATCA compliance processes. Below are some upcoming dates to keep in mind regarding FATCA:


Prior to January 1, 2014 - Foreign legal entities with FFI characteristics must determine whether they are, in fact, FFI’s and should register with the IRS by July 15, 2013.  FFI’s must certify in 2015 that they were compliant with FATCA obligations as of January 1, 2014.


January 1, 2014 - Payors of withholdable payments must have processes and procedures in place to identify and categorize non-US payees for purposes of FATCA, report such payments, and potentially withhold 30% tax.

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