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What is FATCA?

The provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) became law in March 2010.

•  FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts.
•  FATCA focuses on reporting:
•  By U.S. taxpayers about certain foreign financial accounts and offshore assets.
•  By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

 

Who is primarily subject for FATCA?

Foreign Financial Institution

The new rules require foreign financial institutions (FFI’s) to provide the Internal Revenue Service (IRS) with information on certain U.S. persons, invested in accounts outside of the U.S. and for certain non-U.S. entities to provide information about any U.S. owners. FFI includes but not limited to depositary bank, mutual funds, equity investment funds and most insurance companies

 

U.S. Individuals

A U.S. persons (by birth but not holding US passport or ID), U.S. individual residents and a very limited number of non-resident individuals who owns certain foreign financial accounts or other offshore assets. An individual should attach form 8957 with his/her individual tax return form 1040.

 

None-U.S. parties

Individuals, entities, foreign governments and others, who/whom receive certain kinds of income from a U.S. source, must file with FATCA to establish foreign statues with IRS to claim a reduced withholding tax rate or exemption through tax treats with the US.

 

What are the consequences for not complying with FATCA?

• The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting.
• For FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.
• Non-US persons, including but not limited to enterprises, individual and governmental section who/whom does/do not comply with FATCA will be subject to FATCA withholding rate of 30% despite the type of payment (from the source) or the existence of the tax treaty. Accordingly, the FFI will be enforced to close those recalcitrant accounts.

 

I ‘am not a US taxpayer, why should I apply?

Being either, a direct investor or a participant with an FFI’s financials assets including mutual funds or other type of funds that invest in the US, eventually you receive source of income including but not limited to interest and dividends. Therefore, to be exempted or claim a reduced rate, you should apply for FATCA through your FFI or withholding agent. In some cases, FFI will apply higher than 30% to cover up the risk of non-compliance against your account.

 

When FATCA is going live?

FATCA is going live on July 1, 2014 requiring any person/entity investing in the US to register with FATCA.

For FFI, it has to register with IRS and report information regarding accounts, partnership interest and investment funds and other financial assets funds or interest for all US citizens and U.S individual residents and overseas US entities. Accordingly, The FFI should contact you to fill the appropriate form corresponding to your case. Once the identification of accounts is completed by December 2014, you will be requested to file the FATCA forms “form 1042” and informational return ‘Form 1042-S’ and form 8966.

 

What differentiate the current US withholding taxes for FATCA withholdings?

The type of payments under FATCA applies to different payments included in the current withholding taxes, yet to be defined later by IRS.

 

How can we help you?

Associated Accountants “Independent member of GGI” has established a FATCA advisory service within its Zakat & Tax department. We have established our methodology through industry experience to comply with FATCA that is tailored to your case or business. Our office can lead the registration process (forms W9 and W-8s of FATCA) in accordance with Internal Revenue Service “IRS” codes for FFIs and individuals insuring the correct FATCA forms that are corresponding to your case. Nevertheless, we also are capable to take the initiative with you to fill and submit the FATCA tax reporting forms “form 1042” and informational return ‘Form 1042-S’ and form 8966 reporting related to US accounts identified by the end of December 31, 2014, which will be introduced on 2015.