Post by Sapphire Capital on Sept 19, 2012 5:26:13 GMT 4
In March 2010 the US president signed into law FATCA, meaning the Foreign Account Compliance Act. Under this regulation foreign financial institutions, so calles FFIs, are required to enter into a special agreement with the IRS to provide information about each of their US owned or controlled accounts, disclose information to the IRS and withhold US taxes on these accounts if necessary.
Under this forced agreement with the IRS FFI's must
1. Undertake certain identification and due diligence procedures related to the account holder
2. Report the IRS annually
3. withhold and pay over to the IRS 30 per cent of any payments of US income source, as well as gross proceeds from the sale of securities that generate US source income, made to
a. non-participating FFI's,
b. individual account holders failing to provide sufficient information to determine whether or not they are a US person or
c. foreign account entity account holders failing to provide sufficient information about the identity of its substantial US owners.
The 30% withholding tax applies regardles of the amount of gain, or whether there is a gain or loss on the sale (unless the appropriate disclosure is made) FFI's which do not comply risk loosing their correspondent banking.
FFI's include banks, brokerage firms and certain offshore insurance companies.
In the beginning of 2012 the Treasury Department delayed the report requirement of FFI's on income paid to US accounts till 2016 and for gross proceeds paid to US accounts until 2017 (gross proceeds paid is 2016)
FFI's report
name, address, taxpayer identification number, year end account balance and payments (income and gross proceedds) of all US accounts.
FFI's are required
to perform electronic searches of their pre-existing accounts of 50.000 $ US and above, for cash value insurance contracts the amount is 250.000 $US. For private banking accounts, manual paper searches apply to private value accounts over 1 Million $US.
Under the currently proposed rules some FFI's can avoid the process of withholding without entering the agreement if they are "deemed compliant". For that they must either be certified as a participating FFI or be registered with the IRS and satisfy procedural requirements.
Certified deemed compliant FFI's are generally small local banks, retirement funds and non-profits, registered deemed compliant usually includes banks, brokers and financial advisors with local jurisdiction clients, non-reporting members of participating FFI groups and some restricted investment funds. But all have to have procedures in place to comply.
FFI's in non-partner countries will be able to register through an online system available by January 1, 2013.
This means that US taxpayers with undisclosed accounts outside the US must now decide what they will do, risk steep penalties, restructure or come in from the cold.
Remember even with the long delays for FFI's 2013 is the beginning of due diligence requirements for the purpose of identifying new and pre-existing US accounts. This also includes high risk accounts with a balance equal to or greater than 500000$US.
US taxpayers with foreign financial assets of 50000$US or more must file Form 8938, disclosing the accounts on their 2011 return, this in addition to the annual Foreign Bank and Financial Accounts form (FBAR) due June 30.
For Non Resident Alien (NRA) US accounts FATCA institutes a reporting of interest income paid after December 31, 2012. The rules have limits to the disclosure of that information to foreign governments. However the IRS will only NOT follow an exchange of information agreement if there is a concern regarding the use of the information or other factors which makes the exchange inappropriate.
Since this is usually not the case remember that there are information exchange agreements on the US books for 84 countries.
Current FATCA partners are France, Germany, Italy, Spain and the United Kingdom, in these countries the report goes to the local tax authorities and is from there channeld by the government ta authority to the US IRS.
FFI's in non-partner countries have to register starting January 1, 2013 and those who don't will be subject to withholding for certain payments connected to US accounts.
US banks and FFI's outside the US will be asked to police account holders. Know Your Customer Guidelines will become increasinly complicated.
This is eroding existing bank privacy rules outside the US coupled with the need to police your client make the FATCA a law which bothers bankers intensely. It is not only the repercussions to the FFI's but also to the personal bank officers.
When the Offshore Voluntary Disclosure Program came to an end the US IRS had compiled a list of banks and professionals in and outside the US. On Jan 9, 2012 a new Offshore Voluntary Disclosure Program was opened and designed to encourage people hiding offshore accounts to pay what they owe and avoid penalties and possible criminal prosecution. However those who did not use the 2009 and 2011 possibilities will have to pay a penalty of 27.5 % of the highest aggregate balance in foreign accounts/entities and the value of foreign assets during the eight (8) full tax years prior to the disclosure. Unlike the 2009 and 2011 programs no end date was announced yet. If the offshore account was inherited the penalty can be lowered to 5%, if the account balance and assets do not exceed 75000$US the penalty is 12.5%.
Many people are surprised to discover that they are considered US taxpayers by the IRS. You are a US Tax Payer if:
you are a US passport holder or
you are a Green Card Holder or
an Individual who spends 183 days in the US in one year or
an Individual who spends 122 days a year for 3 consecutive years in the US.
Under this forced agreement with the IRS FFI's must
1. Undertake certain identification and due diligence procedures related to the account holder
2. Report the IRS annually
3. withhold and pay over to the IRS 30 per cent of any payments of US income source, as well as gross proceeds from the sale of securities that generate US source income, made to
a. non-participating FFI's,
b. individual account holders failing to provide sufficient information to determine whether or not they are a US person or
c. foreign account entity account holders failing to provide sufficient information about the identity of its substantial US owners.
The 30% withholding tax applies regardles of the amount of gain, or whether there is a gain or loss on the sale (unless the appropriate disclosure is made) FFI's which do not comply risk loosing their correspondent banking.
FFI's include banks, brokerage firms and certain offshore insurance companies.
In the beginning of 2012 the Treasury Department delayed the report requirement of FFI's on income paid to US accounts till 2016 and for gross proceeds paid to US accounts until 2017 (gross proceeds paid is 2016)
FFI's report
name, address, taxpayer identification number, year end account balance and payments (income and gross proceedds) of all US accounts.
FFI's are required
to perform electronic searches of their pre-existing accounts of 50.000 $ US and above, for cash value insurance contracts the amount is 250.000 $US. For private banking accounts, manual paper searches apply to private value accounts over 1 Million $US.
Under the currently proposed rules some FFI's can avoid the process of withholding without entering the agreement if they are "deemed compliant". For that they must either be certified as a participating FFI or be registered with the IRS and satisfy procedural requirements.
Certified deemed compliant FFI's are generally small local banks, retirement funds and non-profits, registered deemed compliant usually includes banks, brokers and financial advisors with local jurisdiction clients, non-reporting members of participating FFI groups and some restricted investment funds. But all have to have procedures in place to comply.
FFI's in non-partner countries will be able to register through an online system available by January 1, 2013.
This means that US taxpayers with undisclosed accounts outside the US must now decide what they will do, risk steep penalties, restructure or come in from the cold.
Remember even with the long delays for FFI's 2013 is the beginning of due diligence requirements for the purpose of identifying new and pre-existing US accounts. This also includes high risk accounts with a balance equal to or greater than 500000$US.
US taxpayers with foreign financial assets of 50000$US or more must file Form 8938, disclosing the accounts on their 2011 return, this in addition to the annual Foreign Bank and Financial Accounts form (FBAR) due June 30.
For Non Resident Alien (NRA) US accounts FATCA institutes a reporting of interest income paid after December 31, 2012. The rules have limits to the disclosure of that information to foreign governments. However the IRS will only NOT follow an exchange of information agreement if there is a concern regarding the use of the information or other factors which makes the exchange inappropriate.
Since this is usually not the case remember that there are information exchange agreements on the US books for 84 countries.
Current FATCA partners are France, Germany, Italy, Spain and the United Kingdom, in these countries the report goes to the local tax authorities and is from there channeld by the government ta authority to the US IRS.
FFI's in non-partner countries have to register starting January 1, 2013 and those who don't will be subject to withholding for certain payments connected to US accounts.
US banks and FFI's outside the US will be asked to police account holders. Know Your Customer Guidelines will become increasinly complicated.
This is eroding existing bank privacy rules outside the US coupled with the need to police your client make the FATCA a law which bothers bankers intensely. It is not only the repercussions to the FFI's but also to the personal bank officers.
When the Offshore Voluntary Disclosure Program came to an end the US IRS had compiled a list of banks and professionals in and outside the US. On Jan 9, 2012 a new Offshore Voluntary Disclosure Program was opened and designed to encourage people hiding offshore accounts to pay what they owe and avoid penalties and possible criminal prosecution. However those who did not use the 2009 and 2011 possibilities will have to pay a penalty of 27.5 % of the highest aggregate balance in foreign accounts/entities and the value of foreign assets during the eight (8) full tax years prior to the disclosure. Unlike the 2009 and 2011 programs no end date was announced yet. If the offshore account was inherited the penalty can be lowered to 5%, if the account balance and assets do not exceed 75000$US the penalty is 12.5%.
Many people are surprised to discover that they are considered US taxpayers by the IRS. You are a US Tax Payer if:
you are a US passport holder or
you are a Green Card Holder or
an Individual who spends 183 days in the US in one year or
an Individual who spends 122 days a year for 3 consecutive years in the US.
