Ensuring that insurance undertakings are compliant

FATCA addresses perceived abuses by U.S. taxpayers with respect to assets held offshore and requires all Insurance undertakings to participate and be compliant. Compliance involves updates of internal processes and may impact relationships with group entities, policyholders 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 insurance undertakings, 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 Inter-Governmental Agreement (“IGA”) countries. Non-compliant entities would be subject to 30% withholding tax on US source income.

Malta signed an 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 insurance companies 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 policyholders?
  • 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 insurance undertakings are compliant

Main industry challenges

Depending on the FATCA status of the considered insurance company, different obligation and consequences will arise.

Insurance companies 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 processes and procedures.

The insurance industry faces the following challenges:

  • Classification of the entity:

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

    -  Categories of FFIs

    -  Active / Passive Non-Financial Foreign Entity (“NFFE”)

  • Avoid FATCA withholding

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

    -  By complying with the requirements of a certified deemed-compliant status

  • Update of legal documentation and procedures
  • Implementation of dedicated due diligence on policy holders and insurance beneficiaries where relevant
  • Communication with counterparties (collect and exchange of W8 forms or self-certification forms)
  • Report US reportable accounts under the FATCA IGA
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