The Foreign Account Tax Compliance Act (FATCA) mandates information reporting and withholding procedures to ensure that US persons invested in or with non-US entities are reported to the US Internal Revenue Service (IRS). Foreign financial institutions (FFIs) must register with the IRS and comply with investor due diligence and verification procedures to identify US account holders.
FFIs must appoint a responsible officer who will ensure that the FFI is registered with the IRS. If the FFI is in a jurisdiction that has not entered into a Model 1 intergovernmental agreement (IGA) with the US, the responsible officer will have to certify as to the FFI’s FATCA status (that includes jurisdictions that have entered into a Model 2 IGA). Model 1 IGAs do not require a responsible officer to certify compliance to the IRS. The role of the responsible officer is typically held by the chief compliance officer, the chief financial officer, or the tax director.
Starting July 1, 2014, US financial institutions and other types of US withholding agents are required to withhold 30 percent on certain US source payments made to FFIs, unless the FFI establishes by registration that it is a participating FFI. Both FFIs in a Model 2 IGA jurisdiction and those in a Model 1 IGA jurisdiction will be treated as in compliance if they are registered. Therefore, to avoid required withholdings, it is critical FFIs register with the IRS. For an FFI located in a jurisdiction that has not entered into a Model 1 IGA, the official registration deadline is June 30, 2014, to avoid the start of July 1, 2014 withholding. FFIs located in a jurisdiction that has entered into a Model 1 IGA have until December 31, 2014, to register and receive a Global Intermediary Identification Number (GIIN). The final day to register for guaranteed inclusion in the first registered FFI list is April 25, 2014. The first registered FFI list will be published on the IRS’s website on June 2, 2014.
We recommend FFIs register before April 25, 2014, even if you are in a jurisdiction that has entered in a Model 1 IGA. Registering will help you avoid potential withholding issues from payors that decide to withhold if you could not provide them with a GIIN by June 30, 2014.
As of January 21, 2014, the following countries have entered into Model 1 IGAs:
- Cayman Islands
- Costa Rica
- Denmark
- France
- Germany
- Guernsey
- Ireland
- Isle of Man
- Jersey
- Malta
- Mexico
- The Netherland
- Norway
- Spain
- United Kingdom
- Slovenia
As of January 21, 2014, the following countries have entered into a model 2 IGAs:
- Bermuda
- Japan
- Switzerland