News on FATCA (The Foreign Account Tax Compliance Act)
As you all may know, on March18, 2010 FATCA was passed by the U.S. Congress with final implementation date of December 31, 2012. Per FATCA, all foreign financial institutions (FFIs) are asked to enter into an agreement with the United States Internal Revenue Service (IRS) to report assets of U.S. citizens and residents holding accounts in such countries. The reporting of assets may prevent the opening of offshore accounts with the purpose to conceal assets to avoid taxes and creditors in the United States. The agreement can be extended to other Non-Financial Foreign entities such as privately held operating businesses, professional services firms, foreign trusts and foreign partnerships that meet certain criteria like accepting deposits in the ordinary course of a banking or similar business, or whether as a substantial portion of its business, the entity holds financial assets for the account of others. The refusal of reporting on the part of the U.S. person may carry a payment of a 30 % withholding penalty on “withholdable payments.” “Withholdable payments” for the purposes of this Act, include U.S. source Fixed, Determinable, Annual, or Periodical (FDAP) income (e.g., interest, dividends, etc.) and gross proceeds from the sale of property which can produce interest or dividends from U.S. sources.
Per IRS, “the details of the new reporting and withholding requirements pertaining to FFIs must be developed through Treasury regulations that have not yet been issued. Because the new requirements will go into effect in 2013, it can be expected that the regulations defining the new requirements will be issued during 2011 and early 2012.”(Source: IRS website last updated on February 25, 2011)
In the interim, we recommend you to do the following:
- Send comments to the Department of Treasury if any
- Assess your current U.S. Clientele and document results
- Train personnel on FATCA
- Ensure to prepare proper communication about FATCA to U.S. clients