Foreign Account Tax Compliance Act (FATCA)
What is FATCA?
FATCA stands for the Foreign Account Tax Compliance Act (FATCA). It was introduced in October 2009 and signed into law in March 2010 as part of Hiring Incentives to Restore Employment (HIRE) Act.
FATCA is designed to prevent tax-evasion by U.S. citizens or residents holding foreign accounts or offshore investments. Under the new FATCA regulations, foreign financial institutions (FFIs) must identify U.S. account holders as well as entities under U.S. control (i.e. U.S. persons having a substantial ownership interest in the entity) and provide the IRS with information on their assets, income payments and trade flows during the fiscal year. FATCA regulations generally become effective on or about July 1, 2014.
How does FATCA impact LVM Ltd. and its clients?
To be FATCA compliant, LVM Ltd. must register its own FFIs with the IRS. In addition, FATCA regulations require LVM Ltd. to review existing onboarding and withholding processes and enhance them to comply with the regulations.
As part of an enhanced client onboarding process, additional documentation may be requested for clients holding accounts at LVM Ltd. For instance, LVM Ltd. may need to obtain tax forms (i.e. W9/W8 series documents) after July 1, 2014, from both new and existing accountholders in order to identify the client’s tax classification.
In what cases do I need to submit a Form W-9/W8-BEN/W8-BEN-E to LVM Ltd.?
In order to determine if tax withholding is applicable, LVM Ltd. must authenticate the residency of its accountholders. For instance, if an account is held by a non U.S. citizen or non U.S. registered business entity, LVM Ltd. may require a Certification of Foreign Status, such as Form W8-BEN or W8-BEN-E for the account. Similarly, if an account is held by a U.S. citizen, U.S. resident alien or U.S. business entity, the accountholder may be required to certify his/her tax status by completing a Form W-9.
How will I know what Form to complete?
- W-8BEN – non-US individual (unless individual falls under below classification)
- W-8BEN-E – non-US entity (unless entity falls under below classification)
- W-8ECI – non-US person with claim that income is effectively connected with the conduct of a trade or business in the United States
- W-8IMY – non-US intermediary, non-US flow-through entity, or non-US trust
- W-8EXP – non-US government, international organizations, non-US central banks of issue, non-US tax-exempt organizations, non-US private foundations, or governments of US possessions
The outline provided above is not intended to be exhaustive and is not warranted or guaranteed by LVM Ltd. as to its completeness or accuracy. For assistance with selecting and completing the tax Form applicable to you, please consult a qualified tax professional.
Will LVM Ltd. withhold taxes on my account?
Under the new FATCA regulations, withholdable payments do not include foreign exchange payments. Although gains on foreign exchange contracts are generally reported to the IRS as gross proceeds, FATCA regulations appear to apply to proceeds from the sale or disposition of property capable of producing interest or dividends from sources within the United States. Of note, this is subject to change if FATCA regulations are amended or revised. Please consult a qualified tax professional for additional assistance.
What is an Intergovernmental Agreement or IGA?
An Intergovernmental Agreement (IGA) is a bilateral agreement between the U.S. government and a country’s tax authority that facilitates compliance with FATCA. More than 50 countries are currently negotiating an IGA.
- In countries with a Model 1 IGA, FFIs will comply under local legislation and report to their local tax authority; in turn, the local tax authority will exchange information with IRS.
- In countries with a Model 2 IGA, FFIs will comply with local legislation to enter into agreements with, and report directly to the IRS.
What is the timeline for FATCA?
LVM Ltd. is carefully analyzing the final regulations and IGAs. Current timelines indicate global compliance on or about July 1, 2014. LVM Ltd. will update the clients that are impacted by FATCA once details are finalized.
Where can I find more information about FATCA?
References: This information is for references purposes only, and reliance on the information contained herein is not an alternative to legal advice from an attorney or other professional legal services provider. Specific questions should be referred to outside counsel. LVM Ltd. assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. LVM Ltd. will not accept liability for any loss, damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of, or reliance on the information contained herein.
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