Chess players in park, Kiev - FATCA

FATCA Compliance

Chess players in park, Kiev - FATCA ComplianceWhen analyzing an investment account, the provisions of FATCA require the account to be classified into one of the following three categories:

  • ‘Approved’ as of 1 July 2014
  • ‘Limited conditional’ until the end of 2015. These administrators are deemed to be FATCA compliant and may register first and verify their status later.
  • The enormous quantity of FFIs that fall into neither category. The IRS calls them ‘rejects’

The first step in seeking ‘limited conditional’ status is to establish whether or not a U.S. individual or entity is part of a foreign financial institution (FFI) and then whether the FFI concerned is in a jurisdiction that restricts the provision of information. If this is indeed the case, then ’limited conditional’ registration is awarded and the FFI is declared compliant with FATCA. This means that the FFI can sign the new W8 BEN-E declaration. If not, then the FFI must first register for a Global Intermediary Identification Number (GIIN) before it can sign the W8 BEN-E. It is possible for an FFI to be dealing with restricted and unrestricted information. An example would be an FFI having both a Foreign Retirement Plan and a Mutual Fund would mean this FFI would have ”limited conditional” covering the retirement plan and a GIIN covering the mutual fund.

The W8 BEN – E Declaration

The rule is simple: no W8 BEN-E, no transactions in U.S. dollars, but what exactly is a W8 BEN-E Declaration? A W8 has been in existence for a long time. It is a declaration by a non-U.S. individual concerning their tax status for U.S. tax purposes. The W8 BEN declaration used to be very simple: a foreign company would declare that it was not a U.S. company, not U.S. controlled and that it didn’t have U.S. income. This was all that was necessary to allow any foreign company’s U.S. counterparty to remit gross income rather than deducting the required amount.

This has all changed since the introduction of FATCA, which has resulted in the introduction of the new W8 BEN-E declaration. Unless the investment platform is able to sign a W8 BEN-E on behalf of the individual, they cannot be party to any U.S.-dollar investment without having some level of FATCA registration.

The FATCA status ‘limited conditional’ means that the institution is exempt from reporting because it is deemed to be compliant and restricted information secrecy laws override FATCA.. This is explicitly for foreign retirement plans as exempt beneficial owners and also for administrators of FATCA identification number pension funds.

One Response to FATCA Compliance

  1. Silicon Palms January 28, 2015 at 1:22 pm #

    Hey Team Fairbrook,
    Congrats on a great series of lectures and presentations in Dubai and Hong Kong.

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