US Treasury issues final FATCA regulations

Monday, 21 January 2013
The US authorities have issued final regulations to govern the operation of the Foreign Accounts Tax Compliance Act (FATCA).

FATCA aims to force American taxpayers with foreign bank accounts to comply with US tax laws, under which they must pay US tax wherever they are resident. The Act requires foreign financial institutions (FFIs) to notify the US Internal Revenue Service (IRS) of any accounts opened or operated by US persons, if the contents exceed USD50,000. FFIs that do not comply must pay the IRS a 30 per cent withholding tax on all receipts from US investments as from January 2014, a penalty which has naturally encouraged most of them to try to comply.

However FATCA's extra-territorial implications have led to a good deal of negotiation between Washington and foreign administrations. This has forced the US authorities to issue guidance as to how the act's disclosure requirements are to be implemented, sometimes adjusting its demands and timescales, and allowing exemptions for certain classes of financial institutions such as pension funds.

The final regulations, which amount to 544 pages and are referred to as TD9610, are likely to be of universal importance to banks both inside and outside the US. Those that intend to comply must register with the US Treasury by 25 October.

Some foreign banks have chosen not to take on new US clients, or even asked long standing clients with US connections to close their accounts, says law firm Withers. However this is not an easy policy to implement where many families have members who are either US citizens or green card holders. Moreover it does not necessarily exempt the bank from implementing FATCA identification procedures on all clients.

Only institutions that never invest in US assets might consider ignoring FATCA, and they are likely to be few.


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