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The five FATCA facts you may have missed

Wealth Manager has compiled some facts that may have slipped your mind.

The US Internal Revenue Service (IRS) has extended its Foreign Account Tax Compliance Act (Fatca) registration deadline from 25 April to 5 May, 2014.

This is the date when UK financial institutions holding US investments on the behalf of clients must register with the US agency for a Global Intermediary Identification Number (GIIN). This is the equivalent to a seal of approval, to appear on the first published list on 2 June this year, regardless of whether clients are US residents.

FFIs must register with the IRS to obtain a GIIN and agree to certain administrative, documentation, withholding, and reporting requirements to avoid a 30% withholding tax on income from the US recieved from 1 January, 2014.

The withholding tax expands to include gross proceeds and foreign passthru payments beginning 1 January, 2017.

But do you know exactly what needs to be done next? Wealth Manager has compiled some facts that you may have missed.

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A US person is not just someone with a US residency

While it is straightforward to determine US clients who are resident or citizens, the Fatca definition of a US person also includes:

- clients who are linked to a US telephone number,

- clients who have an ‘in care of’ address or a ‘hold mail’ address that is the sole address shown in the financial institutions’ electronically searchable information on the account holder.

However, few realise that the Fatca regime also covers individuals with a power of attorney or signatory authority granted where the person has a US address, or anyone who married a person who has served in the US armed forces- even in the American Foreign Legion.

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Similar Fatca checks also apply to Gibraltar persons

While the UK and US intergovernmental agreement will effectively start on 1 July this summer, firms need to apply the checks to all Crown Dependencies and Gibraltar persons.

Indeed, the UK has introduced similar arrangements with these entities after agreements were reached in October and November last year for the Isle of Man, Jersey and Guernsey, and Gibraltar, respectively.

Under those rules, however, due diligence checks are not required for telephone numbers and identification is based on tax residency.

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A client’s account size and on-boarding date determine his type

Under the rules, review deadlines are dependent on the type of client account managed by a firm: individual or entity account, pre-existing or new account, low value or high value account.

CLIENT TYPE

A fairly obvious one, but trusts fall into the definition of an entity account versus an individual account.

TIMELINE

A ‘pre-existing account’ is one maintained by a firm as of 30 June, 2014, while a ‘new account’ is one opened on or after 1 July, 2014.

SIZE

An individual account is considered ‘low value’ if they have under $1 million (£603,000), and falls into the ‘high value’ definition if they have over $1 million as at 30 June, 2014 when the Qualified Intermediary Agreement is renewed, or at 31 December 2015 or at 31 December of any subsequent year.

For entities, however, a ‘lower value’ account is defined as one with less than $250,000 as at 30 June 2014, whilst a ‘high value’ one is defined as more than $1 million at 31 December 2015 or at 31 December of any subsequent year.

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Checking and reporting deadlines depend on a client’s type

This is when determining the nature of a client’s account type also determines when firms are required to do their due diligence and check their files.

- For pre-existing lower value accounts, financial institutions must complete the review by 30 June, 2016.

- However, for high value accounts, these must be completed by 30 June, 2015.

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No need for a responsible officer

While a ‘responsible officer’ is required in US regulations, the US-UK agreement has not replicated this idea.

However, financial institutions are advised to designate someone for the role, as the Wealth Management Association believes HMRC ‘are considering the requirement for some form of nominated person to whom HMRC or the IRS could address any concerns or queries’.

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