FATCA Regulations Finally Arrive: A First Look

On January 17, 2013, the U.S. Treasury Department (“U.S. Treasury”) and the Internal Revenue Service (“IRS”) released long-awaited final regulations on the Foreign Account Tax Compliance Act (“FATCA”). The final regulations respond to industry concerns about the regulatory burden of FATCA by adopting a risk-based approach that is designed to eliminate unnecessary burdens, and coordinate with the practices and obligations under intergovernmental agreements (“IGAs”) that many foreign governments have entered into, or are negotiating, with the U.S. Treasury. The final regulations confirm the phased-in timelines for due diligence, reporting and withholding; expand and clarify the scope of grandfathered obligations and non-financial foreign entity (“NFFE”) payments not subject to withholding; expand the definition of foreign financial institutions (“FFIs”) and exempted entities; and streamline the registration and compliance procedures for FFIs.

Below is a list of highlights from the final FATCA regulations. K&L Gates will provide more in-depth analysis in the coming weeks.

Highlights of the FATCA Final Regulations

Deadlines

- Participating FFIs generally must enter into FFI agreements with the IRS by October 25, 2013 to ensure that they appear on the December 2013 FFI list (and thus avoid withholding starting on January 1, 2014). Each participating FFI will receive a Global Intermediary Identification Number (“GIIN”).

- Participating FFIs and withholding agents have until December 31, 2015 to document account holders and payees that are not prima facie FFIs.

- First information reports for 2013 and 2014 calendar years are due no later than March 31, 2015.

- In general, withholding will apply starting in 2014 to payments of U.S.-source dividends, interest, royalties, and other passive income (referred to as “FDAP income”) to non-participating FFIs and NFFEs that fail to provide required certifications.

- Foreign passthru payments and gross proceeds from sales or dispositions of property occurring before January 1, 2017 are exempt from withholding.

Please see full alert below for more information.

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Topics:  FATCA, FFI, Foreign Banks, Foreign Financial Accounts, Intergovernmental Agreements, IRS, NFFE

Published In: Finance & Banking Updates, International Trade Updates, Securities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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