FATCA affects a wide range of non-U.S. financial institutions: banks, hedge funds, private equity funds, broker-dealers, clearing organisations, portfolio managers, investment advisors, trust companies and private trusts and insurance companies. These affected foreign financial institutions (FFIs), will be required to comply with specific due diligence and verification procedures. FATCA becomes effective beginning July 1 2014 and will be phased-in over two and a half years, ending in 2017.
If an institution fails to comply, they will be subject to a new 30% U.S. withholding tax on any U.S.-sourced income paid on or after July 1, 2014. The withholding tax may be avoided if the FFI enters into an agreement (FFI agreement) with the U.S. Government by registering on a portal (the U.S. Internal Revenue Service opened the FATCA portal on August 19, 2013 and FFIs should register on the FATCA portal no later than April 25, 2014, and comply with the new documentation requirements, due diligence procedures, and reporting and withholding obligations by the deadlines set by the U.S. Internal Revenue Service.
Classify the legal entities in your affiliated group as either FFIs or NFFEs
The penalty for FATCA non-compliance is a new 30% U.S. withholding tax on any U.S. –sourced FDAP income paid on or after July 1, 2014 (FDAP income is passive income like interest, dividends, royalties, premiums, etc.) Starting January 1, 2017, the 30% withholding tax will also apply to the gross proceeds from the sale of U.S. securities that generate dividends or interest. In addition to U.S.–sourced income, and gross proceeds from the sale of investments that produce U.S.–sourced interest or dividends. withholding on “Passthru” payments (income payments from an FFI to a foreign individual or entity who has not complied with FATCA requirements) will begin on January 1, 2017.
Cayman and Bermuda have both signed Intergovernmental Agreements (IGAs) with the U.S. Treasury and Internal Revenue Service (IRS). These Agreements are intended to trump local country law information security, privacy and confidentiality laws that would conflict with reporting financial account information to the IRS. Although the substantive FATCA “tasks” and obligations are largely the same under the IGAs and the FATCA regulations there are some differences (eg: Do financial institutions report information first to the local government, rather than directly to the 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 address the increase in due diligence procedures. PwC’s FATCA team knows the intricacies of US tax laws and the Bermuda and Cayman FATCA Intergovernmental Agreements (IGAs”) and can help you prepare for and implement FATCA compliance.
PwC takes a structured and controlled approach to delivering our services in manageable stages – with timelines, milestones and deliverables. Our goal is to deliver a distinctive client experience, through:
Our Bermuda and Cayman team welcomes the opportunity to meet with you to discuss the impact that FATCA may have on your company’s information reporting and compliance requirements.
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