The Foreign Account Tax Compliance Act (“FATCA”) became law in March 2010 and will enter into effect on July 1, 2014. The policy rationale is to reduce U.S. tax evasion by improving the information available to the IRS about the offshore accounts of U.S. persons. FATCA’s goal is to require foreign financial institutions (“FFI”s) and all other non-financial foreign entities (“NFFE”s) to provide information to the IRS identifying U.S. persons invested in non-U.S. banks and securities accounts. To achieve this goal, FATCA imposes a new 30% withholding tax on U.S. source interest, dividends, other U.S. source passive type income (so-called fixed, determinable, annual, periodical (“FDAP”) income) and gross proceeds from the disposition of any property of a type that can produce U.S. source interest or dividends.

On January 17, 2013, the U.S. Treasury and Internal Revenue Service published the final Foreign Account Tax Compliance Act regulations (the “Final Regulations”). Specifically, the Final Regulations adopted many industry comments, apply a risk-based approach, and simplify administration by allowing many institutions to leverage off existing information reporting rules. Specifically, the Final Regulations.

(i) coordinate the obligations for financial institutions under the regulations and the governmental agreements
(ii) align the timelines for due diligence, reporting and withholding with the intergovernmental agreements (“IGAs”)
(iii) expand and clarify the scope of payments not subject to withholding – notably regarding the grandfathered obligations
(iv) refine and clarify the treatment of investment entities, low-risk institutions or passive investments entities and
(v) clarify the compliance and verification obligations of FFIs such as group of financial institutions.

It is important to assess your needs and related expenditures for FATCA compliance. Significant lead time is required to properly perform a compliance risk assessment and evaluate any required modifications to your existing systems.

Please contact us on fatca@alkharashicaa.com to request a full and detailed brochure for our FATCA services