Author: Heather Smithson, CPA | Tax Supervisor
Whether you are a U.S. person, a foreign financial institution or a non-financial entity, you may be affected by FATCA. FATCA will come into effect in stages, however a major phase went into effect July 1, 2014 when thousands of foreign financial institutions began reporting account information related to their U.S. account holders to the IRS. It is important that you familiarize yourself with the new law and know how it will impact you.
FATCA expands IRS surveillance on Americans overseas activities by requiring institutions to send annual reports to the IRS containing account information for their U.S. account holders including individuals and privately-held U.S. entities. If an institution does not comply, the United States will impose a 30% withholding tax on payments to the institution from U.S. persons. Furthermore, as a U.S. person you will likely need to certify yourself by providing a completed form W-9 (Request for Taxpayer Identification Number and Certification) as well as provide consent so your account information can be provided to the IRS. For a Non-US person, a form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) will be required to certify that you are not a U.S. person. U.S. businesses cannot be presumed as U.S. entities based on their name or address for FATCA purposes. Foreign entities must use Form W-8BEN-E to certify they are exempt from FATCA withholding. This certification may require that entities disclose and certify their direct or indirect owners. If certification is not provided, the 30% withholding must apply to all payments. Be aware that U.S. payors are liable to the IRS for the 30% FATCA withholding plus interest and penalties where they improperly certify and do not withhold.
While a lot of focus has been on the FFIs (Foreign Financial Institutions), Multi-National Corporations (MNC) should review their entities and identify their classification for FATCA. This classification will need to be provided to certify their status to withholding agents, FFIs and others. MNC will also need to comply with FATCA where any U.S. source payment is made to a non-U.S. entity. Businesses should carefully review payment streams, payment processes, documentation and withholding practices to ensure they are updated for FATCA requirements.
We will continue to share our knowledge of FACTA with you in future articles. If you have any questions on how FACTA may impact you or your business, please contact your Keiter representative or email: firstname.lastname@example.org | phone: 804.747.0000.
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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.