FATCA (FOREIGN ACCOUNT TAX COMPLIANCE ACT) In March 2010 the US Congress passed into law the Foreign Account Tax Compliance Act (FATCA), as part of the US Government’s ongoing efforts to counter alleged tax evasion. The objective of FATCA is to identify all US citizens having offshore (to the U.S.) financial products, whether held directly or indirectly, and acquire the information necessary to target tax non-compliance. FATCA came into effect on the 1st July 2014. All foreign financial institutions (“FFIs”), including Pension companies, such are required to register with the US Internal Revenue Service (“IRS”) and report information on all their clients holding US citizenship, whether living abroad or in the US, as well as green card holders and individuals holding certain US investments. The legislation requires that FFIs identify the FATCA status of their clients and to report this information directly to the IRS. In order to better ensure compliance, this law holds that refusal or failure to submit the requested information will mean that the institution be subject to a penal withholding tax of 30% on the US investments. Any entity making a payment of US source income must consider whether this would be subject to FATCA, as it may apply to both financial and non-financial operating companies. This means that it impacts virtually all non-U.S. entities, whether directly or indirectly, receiving most types of U.S. source income, including gross proceeds from the sale or disposition of U.S. property, which can produce interest or dividends. It also applies to companies making payments, e.g. Pension Income or PCLS to any US citizen. It is worth noting that the IRS does not consider retirement arrangements as vehicles normally used for tax evasion, and therefore there are some exemptions from the regime, including UK Pension Schemes. FATCA is in conflict with the existing local legislation in some countries, creating barriers to compliance. It was this that led the US to sign Inter-governmental Agreements (“IGAs”) with a number of these countries where conflict existed. These IGAs seek to improve tax compliance and facilitate the implementation of FATCA. If a jurisdiction has chosen to enter into an IGA to implement FATCA, then the reporting and compliance burden on the financial institutions in that jurisdiction may be simplified. Such financial institutions will not be subject to withholding taxes under FATCA, but to the compliance requirements of local legislation. Malta is one country that has signed such an agreement with the US. Additionally it has entered into further reciprocal arrangements with the Crown Dependencies (Isle of Man and Gibraltar included) for the automatic exchange of information with regards to residents of those territories. Both Gibraltar and the Isle of Man have also signed IGAs with the USA, and Isle of Man has also signed one with the UK requiring notification on any UK residents. The impact of FATCA is widespread, and therefore retirement arrangements overseas also need to assess its impact and ensure that all documentation is up to date, as well as steering clear of anything that is non-compliant with FATCA
Posted on: Mon, 21 Jul 2014 07:44:51 +0000
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