US Person Status, Foreign Account Tax Compliance Act (FATCA)

Important Information Pertaining to US Person Status, Foreign Account Tax Compliance Act (FATCA)

 

What is FATCA?

The US Internal Revenue Service (US IRS) regulation termed Foreign Account Tax Compliance Act (FATCA) was enacted by US Congress in 2010 and has cross-border effects, since the aim is to identify US persons who have invested in either non-US financial accounts or non-US entities. As the US requires its taxpayers to report their global income, the intent of FATCA is to keep US persons from hiding income and assets overseas.

This regulation becomes effective as of 2014 and is the subject of targeted Inter Governmental Agreements (IGA) that are either already in place or are going to be in place, so that other jurisdictions will facilitate the reporting of interest income or assets maintained in their domain.

 

How does FATCA impact you?

The Central Bank of the UAE has already announced through Notice 321/2013 of November 11th, 2013 that Banks and Financial Institutions operating in the UAE need to further enhance their due diligence for clients, in order to ensure that information associated with their potential US taxpayer status is properly identified and recorded.

If the data provided to the Financial Institutions indicate that either an individual or a legal entity is considered as a US person, then starting with the fiscal year of 2014 if the assets during year end exceed the limits determined by the US IRS Service, those assets need to be reported to the UAE Central Bank, which in turn will consolidate the data across all UAE operating Financial Institutions and share it with the US IRS. This will have an impact for US tax purposes.

 

What do you need to do to be FATCA compliant, if you are a Company?

All UAE operating Financial Institutions need to capture more details that relate to the establishment and all the shareholders of any legal entity. Furthermore, Financial Institutions need to identify if the respective shareholders are deemed to be US persons for US Federal Tax purposes.

Any shareholder, who is deemed as a US person that has a controlling interest of 10% or more from any legal entity, regardless of its place of incorporation, would trigger a reporting to the UAE Central bank, who will in turn notify the US IRS.

 

What do you need to do to be FATCA compliant, if you are an individual?

The first step is to provide detailed information to your Financial Institution, including place of birth, multiple Citizenships or Passports held, so that it can determine if you are deemed a US person.

Then, if you are a U.S. citizen, a U.S. resident or a nonresident individual who owns certain foreign financial accounts or other offshore assets specified by the US IRS you must report those assets.

 

For more information:

Please visit the US IRS official website:

http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

Click here to download 'US Person Status' Declaration