FATCA: U.S. and Non-U.S. Sector Impact Overviews
Foreign Account Tax Compliance Act (FATCA) sector impact overviews focus on recommended actions to achieve compliance of FATCA provisions for U.S. Withholding Agents (USWA), Foreign Financial Institutions (FFIs), and Non-Financial Foreign Entities (NFFEs).
U.S. and Non-U.S. Mutual Funds and other Regulated, Open-ended Funds
FATCA will have significant impact on both U.S. and non-U.S. domiciled mutual funds and in many cases FATCA preparation and ongoing compliance activities will require close coordination and oversight of third party transfer agents, distributors, and other intermediaries.
U.S. and Non-U.S. Private Equity & Hedge Funds
The implication of the FATCA regulations on private equity and hedge funds is significant. Virtually every private equity and hedge fund will have to comply with the regulations because such funds will likely be considered either a U.S. withholding Agent (“USWA”) or a foreign financial institution (‘FFI”) under the rules.
U.S. and Non-U.S. Real Estate Funds
The new FATCA rules may impose additional challenges for both U.S. and non-U.S. real estate funds given the many complicated and diverse investment structures that have become common in recent years.
U.S. and Non-U.S. Reinsurance Organizations
U.S. and non-U.S. reinsurance industry participants should begin (or continue) to analyze the potential impact FATCA will have on processes, systems, and business relationships.
In order to be FATCA compliant by July 1, 2014, U.S. broker/dealers would have to undertake substantial work and overcome significant implementation challenges. The impacted broker/dealers should begin designing future state operating models and implementation road maps along with identifying the functionalities of technology systems that will need to be updated.
FATCA requires U.S. banks to enhance the information they collect about non-financial foreign entities (NFFEs) and FFIs to whom they make a withholdable payment under FATCA.
The impact of FATCA on foreign banks is pervasive, possibility more than any other entity or business.
Non-Financial Services Industry
The primary impact that FATCA will have on non-financial services companies is to deem them withholding agents for purposes of FATCA. Although there is an exception for certain nonfinancial payments made in the ordinary course of a business, many payments made by the non-financial services companies could be subject to FATCA withholding and reporting.
Non-U.S. Insurance Companies
The final regulations attempt to simplify a number of definitions concerning insurance companies to make the rules easier to comprehend. However, the definitions still leave some room for judgment and interpretation and may raise challenges to apply consistently for organizations with global operations.