The Foreign Account Tax Compliance Act (“FATCA”) is a US law designed to counter offshore tax avoidance by US persons. Controversial because of its wide-ranging breadth and application to non-US financial institutions, in the most general sense, FATCA imposes a 30% withholding tax on payments of US source income made to foreign financial institutions (“FFIs”) unless they enter into an agreement with the US Internal Revenue Service (“IRS”) and disclose information about their US account holders.
After having revised the timelines for FATCA’s implementation on several occasions (culminating in an implementation delay of over three years from the date of its adoption in March of 2010), FATCA’s official July 1, 2014 implementation date is on the horizon. As a result, FFIs worldwide have made a mad dash in the race toward FATCA compliance over the last few months.
So why does this matter to non-banking/non-financial institutions? Well, as an initial matter, FATCA’s definition of an FFI is broad, including more types of entities than one might expect. As a result, US entities must make sure they have evaluated their corporate structure to determine whether its network includes an FFI. Under FATCA rules, the following types of entities may qualify as FFIs, subject to certain exceptions:
- Non-US retirement funds and foundations
- Special purpose entities and banking-type subsidiaries
- Captive insurance companies
- Treasury centers, holding companies, and captive finance companies
Additionally, even if an organization’s affiliate network does not include an FFI, US-based entities could be
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