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Foreign accounts tax compliance act (FATCA) provisions: Foreign financial accounts

How the U.S. FATCA rules may impact companies


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With the new Foreign Accounts Tax Compliance Act (FATCA) provisions, Foreign Financial Institutions (FFIs) will need to make a decision whether to register with the U.S. Internal Revenue Service (IRS) and perform their own withholding or to delegate the responsibility to custodians.The new FATCA provisions are seeking to impose a 30% withholding tax on all U.S. source income for any FFI that does not register with the Internal Revenue Service (IRS) to document investors and report on U.S. investors. FFIs will likely base their decision on their desire to continue to invest in assets generating U.S. source income or their willingness to bear a 30% withholding tax on all U.S. source income.

FFIs will need to obtain specified documentation to identify U.S. owners. FFIs who fail to register with the IRS and account holders who fail to provide appropriate documentation to an FFI will be considered “recalcitrant account holders,” and the 30% withholding tax will apply to all U.S. source income, including dividends and interest paid on U.S. securities, gross proceeds from the sale of U.S. securities and substitute dividends.

Learn how the new FATCA provisions can impact your company.