The Foreign Asset Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, is aimed at foreign financial institutions to prevent US persons from hiding income and assets overseas. It will have a far-reaching impact on foreign companies with US assets or clients.
The recently issued proposed FATCA regulations clarify the impact that FATCA will have on foreign financial institutions with US assets or clients. Multinational financial institutions will need to make significant process and technology changes to comply with FATCA.
How will FATCA impact your business?
FATCA affects a wide range of non-US financial institutions: banks, hedge funds, private equity funds, broker-dealers, clearing organisations, trust companies and insurance companies. These affected foreign financial institutions (FFIs) will be required to comply with specific due diligence and verification procedures and could face significant consequences if they fail to enter into an agreement with the Internal Revenue Service (IRS).
To successfully comply with FATCA, organisations must also understand and implement substantial changes to people, process, technology and internal governance systems in order to handle the increase of due diligence procedures. If an institution fails to comply, they will be subject to a 30% withholding tax on any “withholdable payment” made to its proprietary account.
In addition, accountholders who don’t provide the FFI with FATCA-required documentation would be deemed noncompliant. The FFI would then be obligated to deduct a 30% withholding tax on any withholdable payment credited to their accounts.
FATCA is more than just a tax or technology topic. It involves governance, compliance and process changes that will impact your entire business. By planning the work and starting now, you can minimize the disruption to business operation as the deadline approaches.
How can PwC help
FATCA will have a significant impact on your information reporting and compliance requirements. Our team of FATCA specialists know the intricacies of tax law and can help you prepare for and implement FATCA compliance. We welcome the opportunity to meet with you to discuss how your company will be impacted by FATCA.