What is Foreign Account Tax Compliance Act (FATCA)?
Foreign Account Tax Compliance Act (“FATCA”) is a tax law enacted in the United States (“U.S.”) in March 2010 and became effective on 1 July 2014. FATCA aims to prevent tax abuse by U.S. taxpayers holding non-U.S. financial accounts.
According to the information published by the U.S. Internal Revenue Service (the “IRS”), FATCA requires foreign financial institutions (“FFIs”) to perform certain due diligence procedures to identify and report to the IRS certain information about financial accounts held by (i) U.S. taxpayers; and (ii) certain foreign entities in which U.S. taxpayers hold controlling ownership interests.
FFIs which do not comply with FATCA may be subject to withholding tax of 30% on certain payments received by them, including interests, dividends, premiums, royalties etc.
What is Common Reporting Standard (CRS)?
Similar to FATCA, the Common Reporting Standard (CRS) is developed by the Organization for Economic Cooperation and Development (OECD), in response to the G20 request and approved by the OECD Council on 15 July 2014. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
CRS is designed to prevent offshore tax evasion. It gives participating countries transparency on the financial assets or accounts held and income earned offshore by their residents.
CRS requires financial institutions to identify customer tax residencies and report financial accounts held directly or indirectly by foreign tax residents to local tax authorities.
Obligations for Financial Institutions especially Caymen Islands and BVI under FATCA and CRS
• Register with the Automatic exchange of financial account information (“AEOI”) portal developed by Department for International Tax Cooperation (“DITC”) of Cayman Islands
• Register with the AEOI portal developed by International Tax Authority of BVI
• Implement a FATCA and CRS compliance program which includes due diligence documentation through the use of self-certification forms
• Identify all new and pre-existing accounts
• Report annually on the financial assets and income of Specified US Persons (for FATCA) and CRS Reportable Persons to the tax authorities
How can CityLinkers help you?
CityLinkers are here to help. We are one of the leading service providers across the financial and non-financial industry areas. Our AEOI Teams consists of an experienced, multidisciplinary group of professionals that have worked on a range of AEOI projects for funds and other reporting financial institutions. Our network of professionals can help you meet your reporting obligations without disruption to your business.
Bespoke services from the CityLinkers AEOI Team include:
i.) Entity Classification & Registration
The first and foremost step in determining the scope of your FATCA and CRS compliance obligations is to properly identify and classify entities as Financial Institutions or Non-Financial Entities.
We can assist with the classification of all your entities / confirm the correctness of your classification for FATCA and CRS purposes.
We can also assist with registration of your entities with the local tax authorities, as required.
ii.) On-Boarding
FATCA and CRS have introduced extensive due diligence requirements. The requirements under FATCA and CRS will affect the due diligence requirements of an entity and on-boarding procedures.
We can assist with confirming that your new customer on-boarding and on-going procedures are sufficient to ensure compliance with FATCA and CRS. We will carry out necessary KYC/AML procedures as required.
iii.) Existing Customers Identification
FATCA and CRS introduced extensive due diligence requirements for examining the accounts of pre-existing account holders to determine whether any relevant indicia is found that identify account holders as reportable for FATCA and CRS purposes.
We will carry out necessary KYC/AML procedures as required for reporting of pre-existing accounts.
iv.) Registration and Reporting
FATCA and CRS reporting in Cayman Islands, BVI and other jurisdictions, have an annual deadline. It is essential for compliance that entities develop processes to collect the relevant information in advance of their reporting deadline.
We are experienced in registering the reporting financial institutions on the online FATCA and CRS reporting portal of local tax authorities like Cayman Islands, collecting the data required for annual reporting, filing the annual reports to the local tax authorities and deregistering the reporting financial institutions from the online FATCA and CRS reporting portal.
v.) Ad hoc Advice
We may provide further FATCA and CRS related advice and respond to queries on an ad hoc basis.
