FATCA : Essentials and deadlines Overview of the main provisions and the key dates of the FATCA regulations

Transcription

1 FATCA : Essentials and deadlines Overview of the main provisions and the key dates of the FATCA regulations July 2014 Tassos Yiasemides, Board Member Panayiotis Tziongouros, Supervisor

2 Contents 1.0 FATCA Overview 2.0 FATCA in Cyprus 2.1 The Inter Governmental Agreement approach 2.2 The US-Cyprus arrangement 3.0 Application of FATCA rules 3.1 Affected payments 3.2 Affected entities 3.3 Registration and reporting obligations 3.4 Key FATCA dates 4.0 FATCA and Trusts 4.1 Trusts as Financial Institutions 4.2 Trusts as Non-Financial Institutions 5.0 FATCA registration 5.1 The registration process 5.2 Why register 6.0 Conclusion member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 1

3 1.0 FATCA Overview

4 1.0 FATCA Overview FATCA is a set of US Treasury Regulations FATCA aims to enable US tax authorities to obtain information about the income of US persons even if they are investing through a non-us financial (or even a non-financial) institution FATCA is enforced through a 30% withholding tax imposed upon certain US Source income payments received by non-compliant FFIs FATCA covered entities are obliged to 1. Register with the IRS 2. Identify US accounts of US Persons : Includes not only US citizens but also persons such as dual citizensof the US and another country, US citizens even if residing outside the US, US passport holders, persons born in the US unless they have renounced US citizenship and lawful permanent residents of the US (i.e green card holders). 3. Report on these accounts 3 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

5 2.0 FATCA in Cyprus

6 2.1 The Inter Governmental Agreement approach What is an Inter Governmental Agreement (IGA) : An agreement not a treaty Why IGAs : To streamline compliance and reduce compliance costs Types of IGA : Model 1 and Model 2 Compliance obligations under Model 1 IGA : Register with IRS report to the local tax authorities 5 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

7 2.2 The US-Cyprus arrangement US Cyprus IGA : Model 1 Agreement treated as being in effect Negotiations : The status of Holding Companies Current source : The US Treasury Draft Model 1 Agreement Framework for FATCA classification : Definitions for Financial Institutions (FIs), Non-Financial Foreign Entities (NFFEs) and excepted entities categories Guidance notes : Reporting implications to be clarified 6 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

8 3.0 Application of FATCA rules

9 3.0 Application of FATCA rules Payors of withholdable payments Any US entity in the stream of payments Non-US Far-reaching scope entities FATCA entity classification FFIs and NFFEs 8 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

10 3.1 Affected payments Payors of withholdable payments Any US entity in the stream of payments A withholdable payment is: Any payment of US source income that is connected with a US trade or business AND Any gross proceed from the sale or other disposition of any property that can produce US source interest or dividends 9 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

11 3.2 Affected entities : Far reaching scope Non-US entities Regardless of whether the entity has US owners, US clients FATCA impacts : Virtually all non-us entities, directly or indirectly, receiving most types of US source income including gross proceeds from the disposition of US property which can produce interest or dividends member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10

12 3.2 Affected entities : Excepted entities FATCA Entity classification ANNEX II of the Model 1 IGA Excepted Entities Model 1 IGA provides for the following Non-Reporting Financial Institutions Deemed Compliant Financial Institutions : These may include FIs with local client base, certain local banks meeting special criteria, FIs with low value accounts, qualified credit card issuers Exempt Beneficial Owners : These may include both special types of Funds (e.g regulated pension funds in other Model 1 states) and entities other than Funds such as governmental entities, international organizations and central banks. Funds wholly owned by Exempt B.Os are also exempt Excepted Foreign Financial Institutions : These may include start-ups, liquidating companies, dormant entities within a group, not-for-profit entities member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11

13 3.2 Affected entities : Financial Institutions (FIs) FATCA Entity classification Model 1 IGA FIs and NFFEs Four (or Five) types of FIs: i. Depository Institution : An entity that accepts deposits in the ordinary course of banking or similar business ii. Custodial Institution : An entity of which 20% or more of the entity s gross income is attributable to holding of financial assets iii. Investment Entity : An entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer: a) trading in money market instruments and other foreign exchange, interest rate and index instruments, transferable securities, or commodity futures OR b) individual and collective portfolio management OR c) otherwise investing, administering, or managing funds or money on behalf of other persons. iv. Specified insurance company : Insurance companies which issue or is obligated to make payments on a cash value insurance or annuity contracts v. (Holding Companies and Treasury Centres) member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 12

14 3.2 Affected entities : Non Financial Foreign Entities (NFFEs) FATCA Entity classification ANNEX I of the Model 1 IGA FIs and NFFEs Two types of NFFEs: i. Active NFFE : Any NFFE of which less than 50 percent of the NFFE s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50 percent of the assets held by the NFFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income ii. Passive NFFE : Any NFFE that is not an Active NFFE member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 13

15 3.3 Registration and reporting obligations Excepted Entities IGA Non-Reporting No registration duty No reporting duty Financial Institutions IGA Reporting Registration duty Reporting on financial accounts duty Non Financial Foreign Entities IGA Non Reporting No registration duty No reporting duty Passive NFFE Registration duty Report on US controlling persons member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

16 3.3 Registration and reporting obligations Articles 2 & 3 Model 1 IGA 2015 (in respect to 2014) Name, address, TIN of each US person (account holder) Account number Name and GIIN of FI Account balance or value 2016 (in respect to 2015) Plus For Custodial : gross amount of interest, dividends, and other income generated For Depository : Interest paid or credited to the account For all other accounts : the total gross amount paid or credited to the account 2017 (in respect to 2016) Plus For Custodial: The total gross proceeds from the sale or redemption of property member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

17 3.3 Registration and reporting obligations Active NFFEs If an NFFE is classified as Active it has no registration or reporting obligations NFFEs are advised to perform self certification through Form W- 8BEN-E Passive NFFEs Passive NFFEs may have to disclose the identity and tax residence of controlling persons member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

18 3.4 Key FATCA dates: Model 1 IGA Reporting 1 st July 2014 : New accounts due diligence procedures should be in place 1 st Jan 2015 : GIIN required for payees that are Model 1 Reporting entities March 2015: (expected subject to guidance notes) First FATCA return to the IRD March 2016: Annual FATCA Return for June 2015: FIs will need to have all due dilligence procedures in relation to the identification and reporting of pre-existing accounts member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 17

19 4.0 FATCA for Trusts

20 4.1 Trusts as Financial Institutions Trusts are subject to the same provisions as all other Non-US entities under a Model 1 IGA Their classification will depend on the nature of the activities and the nature of the assets held by the Trust Trusts will likely be classified as Investment Entities where: a) The trustee is a Financial Institution (e.g a Fund Manager) b) The trustee is not a financial institution but engages a Financial Institution to manage the Trust c) Trustee is not a Financial Institution but engages a Financial Institution to manage the financial assets of the Trust Guidance note expected to offer clarification Trusts may also be classified as Custodial Institutions : e.g Employee benefit Trusts member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 19

21 4.2 Trusts as Non-Financial Institutions In cases where the Trust is a Non-Financial Foreign Entity Active NFFEs will have no registration or reporting obligations Passive NFFEs will have registration and reporting obligations on their controlling persons member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 20

22 5.0 FATCA Registration

23 5.1 FATCA Registration Identifying all entities within the Expanded Affiliated Group Determine the residence of each entity or branch Classify all entities and branches according to the IGA Model 1 Determine whether the FI will register as Single or Lead FI Identify the Responsible Officer Identify the Point(s) of Contact member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 22

24 5.1 FATCA Registration Registration on-line : Global Intermediary Identification Number - GIIN issued IRS FFI list issued on a monthly basis on the IRS website member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 23

25 5.2 Why Register? To avoid mistaken withholding from US payors Commercial recognition World renowned banking institutions require a GIIN in performing transactions member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 24

26 6.0 Conclusion : Time to act is now Non-US entities must determine their FATCA status If not excepted they need to register until 31 st Dec 2014 Entity need to review accounts for US indicia of US persons US indicia - Entity needs to obtain further info and determine if US account Entity must report on US accounts May be excepted If not risk of 30% withholding by US payors 25 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

27 Contact Details Tasos Yiasemides Board Member International Tax & Corporate Services KPMG Limited Panayiotis Tziongouros Supervisor International Tax & Corporate Services KPMG Limited 2014 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved ptziongouros@kpmg.com The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International").