Foreign Account Tax Compliance Act.

FATCA stands for the Foreign Account Tax Compliance Act. It refers to provisions included in the Hiring Incentives to Restore Employment Act that was signed into law on by the United States (US) Congress on 18 March 2010 and effective January 1, 2014. It adds a new chapter to the US Internal Revenue Code (chapter 4) which is aimed at addressing perceived tax abuse by US persons using accounts outside of the US. 
 

The term “US person” is defined as:
    a U.S. citizen (including dual citizens) even if residing outside of the US;
    a US passport holder; 
    a person born in the US unless renounced citizenship; 
    a U.S. resident alien for tax purposes (green card holders); 
    entities (partnerships,corporations, trusts, etc) where one or more United States persons have control or over 10% shareholding.

Foreign Financial Institutions (FFIs) are institutions that:

• accept deposits as a regular business function 
• holds financial assets for the account of others as a substantial portion of its business. 
• are engaged in the business of investing. 
• are involved in reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities. 
   

Both. FATCA is applicable to both individuals and business customers.
 

FFIs will be required to register with the US Internal Revenue Service (IRS) and will be assigned a Global Intermediary Identification Number (GIIN). FFIs will be required to submit information on persons with US indicia who hold accounts with them or own over 10 per cent (10%) of an entity that has an account with the FFI, above a stipulated threshold. It is important to note that this will vary for individuals and companies. 
 

All customers will be subject to an electronic perusal of their account information. This perusal seeks to determine which accounts have US indicia. US “indicia” include: whether a customer has US citizenship or permanent residency. It also includes the use of US address; Post Office Boxes and US telephone numbers. If these basic levels of indicia are identified, customers will be required to disclose their legal name, address, and US Tax Information Number (TIN). This information, as well as the account number, the account balance; and the gross receipts and gross withdrawals or payments from the account will be sent to the IRS. FATCA is unlikely to impact the vast majority of customers.

Existing Customers

Customers holding accounts which predate the implementation date will be required to update their account information and as per regulations if the account exhibits US indicia, the customer may be asked to provide additional info as a US person or to prove that they are not a US person.

Impact on New Customers

Changes in onboarding procedures will impact new customers as additional information may be requested from new applicants to determine whether they are US persons. 
 

Customers who do not disclose the requisite information to an FFI will have their accounts flagged as non-compliant. The FFI will be required to eventually close the account if the information is not received within a specified period of time. Until the closure of the account, a 30% levy will be applied to any payment of interest, rents, royalties, salaries, wages, annuities, licensing fees, income, and profits derived from sources within the US. 

If you qualify as a U.S. Person based on the information outlined in question #2, you may be required to submit further information to your Financial Institution. Customers are also advised to seek further advice from a tax professional. 
 

If one of the accountholders qualifies as a U.S person, and the account balance is above the reporting threshold- FATCA requirements are that the account should be reported. Customers are also advised to seek further advice from a tax professional.

Your financial institution can only provide general FATCA information, however customers are advised to see tax advice from a relevant tax professional.