On Thursday July 14th. 2011, the U.S. Internal Revenue Service and Treasury Department announced their extended deadlines and projected scheduled for implementing the Foreign Account Tax Compliance Act (FATCA) to January 1, 2015.
As you all may know, on March18, 2010 FATCA was passed by the U.S. Congress with final implementation date of December 31, 2012. Per FATCA, all foreign financial institutions (FFIs) are asked to enter into an agreement with the United States Internal Revenue Service (IRS) to report assets of U.S. citizens and residents holding accounts in such countries. The reporting of assets may prevent the opening of offshore accounts with the purpose to conceal assets to avoid taxes and creditors in the United States. The agreement can be extended to other Non-Financial Foreign entities such as privately held operating businesses, professional services firms, foreign trusts and foreign partnerships that meet certain criteria like accepting deposits in the ordinary course of a banking or similar business, or whether as a substantial portion of its business, the entity holds financial assets for the account of others. The refusal of reporting on the part of the U.S. person may carry a payment of a 30 % withholding penalty on “withholdable payments.” “Withholdable payments” for the purposes of this Act, include U.S. source Fixed, Determinable, Annual, or Periodical (FDAP) income (e.g., interest, dividends, etc.) and gross proceeds from the sale of property which can produce interest or dividends from U.S. sources.
“Notice 2011-53, provides a workable timeline for FFIs and U.S. withholding agents to implement the various requirements of FATCA. Specifically, the notice phases in the implementation of FATCA in the following manner:
- An FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
- Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2015.
- Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014.
- For purposes of the Notice, high risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.
The U.S. Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively”(Source: IRS website last updated on July 14, 2011)
In the interim, we recommend you to do the following:
- Send comments to the Department of Treasury if any
- Assess your current U.S. Clientele and document results
- Train personnel on FATCA
- Ensure to prepare proper communication about FATCA to U.S. clients