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Implications of Foreign Account Tax Compliance p g pAct (FATCA) for Credit Unions
Implications of Foreign Account TaxImplications of Foreign Account Tax Compliance Act (FATCA) for Credit UnionsCredit Unions
With an introduction fromWith an introduction fromWith an introduction from With an introduction from Andy Andy PoprawaPoprawa, , CEO of DICOCEO of DICO
Webinar Agenda
• What is FATCA?• Why is FATCA important to Credit Unions?• Why is FATCA important to Credit Unions?• What is FFI Registration?• What is the FATCA Reporting Regime?• What is the FATCA Reporting Regime?• What do FFIs need to do to become FATCA
compliant?compliant?• When does FATCA become effective?
• FATCA will require foreign financial institutions (FFIs) to:( )─ Register with the US Internal Revenue Service─ Identify their customers who are AmericansIdentify their customers who are Americans,
and─ Report these American customers to the IRSepo t t ese e ca custo e s to t e S
• Non-participating FFIs will suffer:– 30% US withholding tax on its and its
• Licensed or regulated under the laws of its country of organization (which must be "FATF-compliant") as a bank or similar organizationM t h fi d l f b i t id it t f i ti• Must have no fixed place of business outside its country of organization and must not solicit account holders outside its country of organization
• At least 98 percent of the accounts maintained by the FFI must be held b id t f th FFI’ t f i tiby residents of the FFI’s country of organization
• The FFI must be subject to information reporting or tax withholding requirements in its country of organization with respect to resident acco nt holdersaccount holders
• Must establish policies and procedures to ensure that it does not open or maintain any accounts for specified U.S. persons that are a resident
Certified Deemed Compliant FFIs - FFIs with Low Value AccountsValue Accounts
• Not required to register with IRS• Provide certification to US withholding agent• Provide certification to US withholding agent• Applies to local bank or local custodian with low
value accountsvalue accounts– No account can exceed $50,000– No more than $50 million in assets for most– No more than $50 million in assets for most
In a FFI Agreement, a FFI will be required to:1. Obtain information and documentation regarding each account holder to
determine whether an account is held by US individuals and certaindetermine whether an account is held by US individuals and certain entities;
2. Comply with IRS due diligence and verification procedures with respect to the identification of United States accounts;
3. Report annually certain information on United States and recalcitrant accounts that it maintains;
4. Deduct, withhold and pay over 30 percent of certain pass-thru payments that the FFI makes to recalcitrant account holders (and others); and
5. Attempt to obtain a waiver of applicable bank secrecy or other local information disclosure limitations or close the United States account if the waiver is not obtained within a reasonable period of time
waiver is not obtained within a reasonable period of time.
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FFI Registration
• Online registration and account management• Application process to commence early 2013• Application process to commence early 2013• IRS model FFI Agreement is expected
• Exempt: depository accounts that do not exceed $50,000
• Accounts that exceed $50,000 but do not exceed $1,000,000 are subject only to review of "electronically searchable information" for "indicia of U.S. status."review of electronically searchable information for indicia of U.S. status.
1. Identification of an account holder as a U.S. resident or citizen; 2. a U.S. place of birth; 3 a U S address or mailing address (including a U S P O box);3. a U.S. address or mailing address (including a U.S. P.O. box); 4. a U.S. telephone number; 5. standing instructions to transfer funds to an account maintained in the
United States;United States; 6. a power of attorney or signatory authority granted to a person with a U.S.
address; or 7. a U.S. “in-care-of” or “hold mail” address that is the sole address the FFI
a U S ca e o o o d a add ess a s e so e add ess ehas identified for the account holder.
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More on Procedures for Preexisting Individual AccountsAccounts
• No further search of records or contact with the account holder is required unless U.S. indicia are found through the electronic search.
• Electronically searchable information - information an FFI maintains in its tax reporting files customer master files or similar files stored in electronic form that can be accessedfiles, customer master files or similar files stored in electronic form that can be accessed through standard programming queries.
• For "high value" accounts with a balance or value that exceed $1 million, a paper file review for U.S. indicia must be performed, including an inquiry of the actual knowledge of any relationship manager associated with the account. The paper file review is limited to the “customer master file” and other documents.
• Deadline for completing due diligence of preexisting individual account procedures -
• High value accounts – Due diligence must be performed by the later of December 31, 2014 or date that is one year from effective date of FFI Agreement
• Other individual accounts (other than high value accounts) – Due diligence must
Other individual accounts (other than high value accounts) Due diligence must be performed and documentation obtained by the later of December 31, 2015 or two years after the effective date of FFI Agreement.
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Preexisting Entity Accounts
• Exempt Accounts - preexisting entity accounts with a value or balance of $250,000 or less are exempt from due diligence until the balance or value exceeds $1 million.
• Entity accounts exceeding $1 million must be reviewed to determine the reporting status of the entity based on FATCA entity classifications and a review of existing accountof the entity based on FATCA entity classifications and a review of existing account information. If the entity account holder is then found to be a "passive investment entity," it must be determined whether that entity has substantial U.S. owners. If the account value exceeds $1 million, then information regarding all of the entity's substantial U.S. owners must be obtained or a certification (on W 8) that the entity does not have anyowners must be obtained or a certification (on W-8) that the entity does not have any substantial U.S. owners must be obtained.
• Deadline for completing due diligence for preexisting entity accounts -
for "prima facie" FFI accounts due diligence must be performed and documentation– for "prima facie" FFI accounts, due diligence must be performed and documentation obtained by the later of June 30, 2014 or 6 months after the effective date of the FFI Agreement
– all other preexisting entity accounts, due diligence must be performed by the later of D b 31 2015 t ft th ff ti d t f th FFI A t
December 31, 2015 or two years after the effective date of the FFI Agreement.
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New Accounts
• New Individual accounts (accounts opened after the effective date of an FFI's agreement) - review the information provided at the opening of the account, including identification and any documentation collected under AML/KYC rules. If U S indicia are identified as part of that review the FFI must obtain additionalIf U.S. indicia are identified as part of that review, the FFI must obtain additional documentation or treat the account as held by a recalcitrant account holder.
• New Entity Accounts - certification as to whether an entity account holder has any substantial U S owners is required However certain entities are exemptany substantial U.S. owners is required. However, certain entities are exempt from documenting substantial U.S. owners and this exempt status can be verified on a W-8.
• Deadline for implementing new individual and entity account openingDeadline for implementing new individual and entity account opening procedures – new account opening procedures must be implemented by the later of January 1, 2014 or the effective date of the FFI Agreement.
Recent developments• Proposed regulations and a recent IRS Announcement phase-in the rollout of FATCA due diligence and withholding. FATCA
withholding on US source FDAP will be required as of January 1, 2014 and withholding on gross proceeds is required as of January 1, 2017. These rules (which will generally be incorporated into final regulations), should provide FFI's with more clarity to take the project planning forward in order to comply with the forthcoming final regulations.
• These timeframes and associated activities are by no means set in stone and are purely illustrative.