Beginning January 1, 2013, the provisions of the Financial Account Tax Compliance Act (FATCA) will impose a 30% US withholding tax on any US-sourced income and the gross proceeds from the sale of investments that produce US sourced interest or dividends (withholdable payments) received by any offshore fund or other foreign financial institution (FFI). This withholding tax is avoided if the FFI enters into an agreement with the US Government and agrees to comply with new documentation requirements, due diligence procedures, and reporting obligations. These new requirements are aimed at detecting US tax residents that may be evading US federal income tax by holding investments directly or indirectly through an FFI.
FATCA has important implications for our clients in the asset management industry, as it will:
Initiating a program now to identify and assess the critical business, tax, and operational impacts arising from FATCA will increase an asset manager’s opportunity to address the business issues and implementation challenges through a complete, effective, and cost-efficient implementation program that will permit full compliance by January 1, 2013 (the effective date of FATCA’s new documentation requirements, due diligence procedures, and reporting obligations).