Chris Humphries
Megan Wright
Clients are reminded of the following important filing dates for Financial Institutions (FIs) under the CRS and FATCA Regime and Economic Substance regime filings with the Tax Information Authority in the Cayman Islands. Additionally, clients are...
(US) FATCA are regulations which require financial institutions outside the US to report information on financial accounts held by their US customers to the Inland Revenue Service (“IRS”).
The information to be reported is equivalent to that required to be reported by the US citizens in their US tax returns.
How do Cayman Islands financial institutions comply with FATCA?
On 29 November 2013, the Cayman Islands and the US signed their intergovernmental agreement (the “US IGA”) to improve international tax compliance and to implement FATCA based on a Model 1 IGA. Cayman Islands financial institutions will not be subject to the Withholding Tax so long as they comply with the requirement of the IGA and in the Cayman Islands implementing legislation, regulations and guidance.
Cayman Island entities which are caught by FATCA (which will be most private equity and investment funds) are required to create a compliance program which will include registering with the IRS, undertaking due diligence on their investors and, in due course, reporting on certain information to the Cayman Islands government.
What happens if you do not comply with FATCA?
If financial institutions do not comply with FATCA, a 30% withholding tax is imposed on US source income payable to that financial institution. Where US customers are not providing relevant information to a financial institution, the financial institution is required to close the account of that relevant person.
Current status?
The next few months in the Cayman Islands is going to be a busy period. The legislation which will bring into force the US IGA, as well as the associated regulations, has been published and there is now a period of consultation with the industry. A draft of the guidance notes have also been released, which are intended to provide practical assistance in dealing with the application of the US IGA.
The message for now is that Funds need to start engaging with their advisers, if they haven’t already done so. Deadlines may already have been missed and others are fast approaching.
We will be shortly providing a full guidance note on FATCA.
