The Foreign Account Tax Compliance Act (FATCA) was enacted by the US Congress in March 2010 to improve compliance with US tax laws. FATCA imposes certain due diligence and continuing reporting obligations on foreign (non-US) financial institutions (FFI), including those institutions operating in the Pacific.
These institutions will be required to report to the US Internal Revenue Service (IRS) information on US citizens with financial accounts. The obligation to collect information about a FFI’s US customers’ US tax status started on 1 July 2014. There are additional obligations which progressively come into effect.
These are some of the things FFIs should have done, and will need to complete?
- FFIs should have completed registration as a foreign financial institution with the IRS.
- Since then FFIs should have implemented new account opening procedures to ensure that U.S. citizens opening accounts are accurately identified for FATCA reporting obligations.
- Financial institutions are required to have in place a mechanism to obtain declarations from individuals opening new accounts from 1 July 2014 and for entities opening new accounts from 1 January 2015.
- In addition to new account due diligence, foreign financial institutions are required to undertake due diligence of their accounts which existed at 30 June 2014, as well as any entity accounts opened between 1 July 2014 and 31 December 2014.
- Ensuring you have updated existing internal and external documents, policies and processes to reflect FATCA requirements.
- Foreign financial institutions are to report annually on certain account holder information in respect of their account holders who are U.S. persons. The next crucial reporting dates are 31 March 2016 and 30 September 2016.
The 31 March 2016 deadline applies to FFIs in non-IGA jurisdictions and FFIs in Model 2 IGA jurisdictions. And those FFIs are required to report (for 2015) on all the information categories in the 2014 reports, along with information on income paid to those US customer accounts.
If all of this seems complex, that’s because it is.Feel free to contact Nitij Pal to have a discussion.