As part of the Hiring Incentives to Restore Employment Act, the US government enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA imposes due diligence, information reporting and control burdens on a range of non-US financial intermediaries and investment entities (foreign financial institutions, or FFIs), including banks, other financial institutions, certain insurance companies, investment funds and other collective investment vehicles.
FFIs will be required to disclose the name, address and taxpayer identification number of certain US persons that have investments in offshore financial institutions or own, directly or indirectly, an interest in an investment fund, and certain additional information relating to any such interest. If an FFI fails to register with the IRS or to comply with the reporting obligations, then a 30 per cent withholding tax will be imposed on payments to the FFI of US source income and proceeds from the sale of property that could give rise to US source interest or dividends.
Implementation of the withholding tax provisions was set for 1 January 2014 (1 January 2017 in the case of proceeds from the sale of property) but was recently postponed. 1 July 2014 is now the operative date on which FATCA withholding begins, new account opening procedures must be implemented and foreign financial institutions must be registered. Grandfathered obligations will include obligations outstanding on 30 June 2014…
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This article provides a reminder of the impending deadlines and action that is required for those BVI entities that are classified as ‘foreign financial institutions’ for the purposes of FATCA.
Cayman has taken a creditor-friendly approach to implementation.