What is the Foreign Account Tax Compliance Act (FATCA)?
- The legislation is designed to ensure that the IRS can collect the appropriate amount of taxes from all US persons with offshore investments or interests. This is accomplished by requiring disclosure of US account and ownership information by foreign entities in which interests are held.
- FATCA regulations will require certain entities classified as foreign under US tax laws to enter into an agreement with US tax authorities to apply the FATCA rules to their clients and account holders. The result of these regulations will globally impact classification of and reporting requirements of foreign entities, depending on their business activities.
- Foreign entities will be classified as either Foreign Financial Institutions or Non-Financial Foreign Entities which will have to comply with FATCA reporting rules. These entities are defined below.
What are Foreign Financial Institutions (FFIs)?
- Under the FATCA Regulations, an FFI is any non-US entity that holds a substantial portion of its business financial assets for the benefit of another or holds itself out as any one of a number of broadly defined investment vehicles.
- Examples of FFIs include banks, trusts, collective investment vehicles, custodians, hedge funds, private equity companies and investment banks.
- In general, a trust will be an FFI if it is managed by a depository institution, custodial institution, investment entity, or insurance company and the trust’s gross income is primarily attributable to investment income.
What are Non-Financial Foreign Entities (NFFEs)
- NFFEs are any foreign entities which are not FFIs.
- Examples of NFFEs generally include any foreign entity that is not engaged in the banking or investment management business, including privately-held operating businesses, professional services firms and any other non-publicly traded foreign entities that derive the majority of their business income from non-passive activities.
What is the Enforcement Mechanism for FATCA?
- FATCA is enforced with a 30% withholding tax on withholdable payments to persons that do not qualify for a FATCA withholding exemption.
- FATCA compliance is expensive, complicated and cumbersome.
What are the Advantages of a Wyoming Trust and FATCA?
- For US people who are considering offshore trusts it is a very easy choice to stay onshore and avoid FATCA compliance altogether.
- No US person will have to comply with any FATCA regulations if his or her assets are in onshore US investment vehicles qualifying as US persons.
For more information on Why a Wyoming Trust, please click here.