Ensuring that banks are compliant

FATCA addresses perceived abuses by U.S. taxpayers with respect to assets held offshore and requires all Banking entities to participate and be compliant. Compliance involves updates of internal processes and may impact relationships with group entities, clients and business partners.

FATCA requires payers of U.S. source income and gross proceeds to withhold 30% on payments to non-U.S. entities that do not comply with the FATCA obligations.

Are you ready for FATCA?

Enacted in 2010, the U.S. Foreign Account Tax Compliance Act (“FATCA”) compels certain non-U.S. entities (qualifying as Foreign Financial Institutions (“FFIs”) under the Act), including banking entities, to report U.S. account holders (including certain passive non-financial foreign entities held by controlling US persons) to the Internal Revenue Service (“IRS”) via local authorities in some IGA countries. Non-compliant entities would be subject to 30% withholding tax on US source income.

Malta signed an Inter-Governmental Agreement (“IGA”) with the United States on December 16, 2013. The IGA has been transposed into domestic law by means of legal notice 78 of 2014 and has entered into force on 26 June 2014. As a result Maltese banking entities need to comply with the FATCA requirements based on this local law and local guidelines to be published.

In order to assess your FATCA readiness, you would need to consider the following attention points:

  • Did you map your FATCA status?
  • Do you know how the local law might enforce FATCA on your business?
  • Did you define your FATCA responsible person and who will register the entity?
  • Did you collect appropriate documentation on your clients?
  • Do you know how to report US accounts where relevant?
  • Did you already complete W-8BEN-E/IMY or other self-certification forms as requested by certain business partners?
FATCA - Ensuring that banks are compliant

Main industry challenges

Non-US entities conducting banking or similar business will directly be impacted by the FATCA regulations. All these entities will be subject to the 30% withholding tax in case of non-compliance with the FATCA requirements. This may have severe implications from a reputational, commercial and compliance standpoint.

Banking entities need to act now in order to understand the scale of their compliance requirements and to have the best chance of a coordinated and cost effective implementation of the required process and procedures.

The banking industry faces the following challenges:

  • Classification of the entities:

    -  Reporting Financial Institution (“FI”) / Non-reporting FI

    -  Categories of FFIs

  • Avoid FATCA withholding:

    -  By registering with the IRS as an FFI/registered deemed-compliant FI where required, or

    -  By checking the application of certified deemed-compliant statuses

  • Update of legal documentation and procedures
  • Implementation of dedicated clients’ due diligence
  • Communication with counterparties and clients (collect and exchange of W8 forms or self-certification forms)
  • Report US reportable accounts under the FATCA IGA
  • Coordination with the qualified intermediary (“QI”) regime where relevant
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