Home > FATCA

The US Government’s Foreign Accounts Tax Compliance Act known as “FATCA” affects any institution anywhere in the world that has American investment clients. The act seeks to make any entity with such clients legally responsible in America for reporting to the American government the financial activities of the American tax payers that the entity manages, controls, or influences.

Within America every financial institute has to provide to the American government detailed annual reports showing every transaction conducted by their American tax paying clients.

FATCA attempts to place the same liability and responsibility on every institute worldwide that has such American tax payers within its client list.

There are no “carrots” for compliance with this act but there are considerable “sticks”.

For companies that do not register and comply with the FATCA rules, any of their invoices for money to be sourced from America will be automatically subject to withholding tax at 30% on the gross invoice. No allowances will be made for expenses. The US government has already announced that this rate of withholding tax will progressively increase by a further 10% per annum until it reaches 60% per invoice.

In order to comply, entities must first register and will be given a unique identity number which, in future, they will have to quote on every American invoice in order to avoid withholding tax being deducted.

The application process to register for FATCA will be more or less complicated depending on where the applicant is situated in the world. If the applicant is incorporated or registered in a country, which has full tax information exchange treaties with America, the application will be relatively simple, but will still require considerable detail. If the applicant is unfortunately situated in a country without such a treaty with the United States, then the application process becomes dramatically more complicated.

Once application has been completed and the identification number has been allocated, for every year thereafter and for every American tax paying client, the registered applicant will have to provide, in a timely manner to the American government, details of every transaction of every American client that they have. Nil returns for such clients will also be required. The cost of this monitoring and reporting will be borne 100% by the applicant or, if possible, they may be able to pass this cost onto the American clients.

Full registration and reporting is required even if only one American client exists.

Last but not least, applicant will have to certify to the American government that, to the best of their knowledge, their client or clients are fully reporting their American taxable income and gains. This declaration currently extends to include all transactions, not just those carried out through the applicant itself.

The date for applications to be completed has been progressively put back and now stands at the end of July 2014. The application process is now available online and TAI has now registered.

We intend to offer two levels of service to our clients. Firstly, we hope to be able to facilitate registration. Secondly, we hope to be able to assist clients in judging whether or not their clients are fully registering their affairs for US tax purposes. Regrettably, we do not have the facilities to be able to assist in preparing the annual returns that will be necessary. Applicants for registration will almost certainly need to modify their internal systems to provide these automatically, and cost effectively.

There is no good news in this message! None the less we hope to be able to help our clients to manage this new work load and their responsibilities and liabilities from it as effectively as possible. We welcome any enquiries.