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What is an FFI?
A Foreign Financial Institution (FFI) is broadly defined in the FATCA regulations. In short, an FFI is any non-US entity that includes but is not limited to:
* Depository Institutions (for example, banks)
* Custodial Institutions (for example, mutual funds)
* Investment entities (for example, hedge funds or private equity funds)
* Certain types of insurance companies that have cash value products or annuities
What is an NFFE?
An entity that is not classified under the definitions of an FFI is considered an NFFE (Non-Financial Foreign Entity).
What is FDAP Income?
FDAP is an abbreviation for Fixed, Determinable, Annual or Periodic income. FDAP income applies to foreign persons earning income in the US; such persons will be subject to 30% withholding tax or a lower rate if there is a tax treaty between the United States and the country of residency.
What is a Recalcitrant Account Holder?
A recalcitrant account holder is any account holder that:
1. Fails to comply with reasonable requests for information necessary to determine if the account is a United States account;
2. Fails to provide the name, address, and TIN of each “specified United States person” and each substantial United States owner of a US-owned foreign entity; or
3. Fails to provide a waiver of any foreign law that would prevent a foreign financial institution from reporting information required under FATCA.
What is considered indicia of US status?
IRS Notice 2011-34 lists six indicia of US status:
1. US citizenship or lawful permanent resident (green card) status
2. A US birthplace
3. A US residence address or a US correspondence address (including a US PO box)
4. Standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a US address
5. An “in care of” address or a “hold mail” address that is the sole address with respect to the client
6. A power of attorney or signatory authority granted to a person with a US address.
Having any of these will flag the reporting agent to further investigate the account holder to verify if he/she is a US person.
What is a Deemed Compliant FFI?
Some FFIs will not be required to enter into an FFI agreement with the IRS in order to be exempt from FATCA withholding. These FFIs are referred to as deemed-compliant FFIs, which are required to have met their withholding requirements:
(a) apply for deemed-compliant status with the IRS;
(b) Obtain an EIN from the IRS; and
(c) certify to the IRS every 3 years that it meets the requirements for deemed-compliant status.
Note: Deemed-compliant is reserved for only certain entities that the IRS has deemed low risk of tax evasion, such as local banks, local FFI members of participating FFI groups and certain investment vehicles.
What do I do if I am being requested a W-8BEN-E from a US withholding agent?
Classification of your Chapter 4 entity status will need to be performed in order to properly fill out this form. Currently, the instructions to this form have not been issued by the IRS. We believe the old series W-8 will be acceptable through 2014. See our blog on the W-8.
How do I know which Chapter 4 statuses I fall under?
Look into your local IGA agreement for definition of FFI/NFFE, and for further clarification see the FATCA Final regulations for guidance on classifications of entities. Our tax lawyers and FATCA specialist can help.  See our blog for list of IGA countries.
If my company is organized in the UK under the Model 1 agreement do I still need to register?
In some cases you will, depending if it is a reporting or non-reporting UK financial institution.
What is the penalty for non-compliance?
30% withholding on all US-sourced FDAP payments.
How can I prove that I have acted in 'good faith' to comply with FATCA law?
Sign an engagement letter to prove that you are looking into getting third party assistance from a US Tax specialist. Perform the due diligence that is required by the stated IRS deadlines. See our blog on the W-8.
What is an Intergovernmental Agreement (IGA)?
They are agreements between the United States and another jurisdiction. It sets out general definitions, the obligations of the United States and the FATCA Partner jurisdiction to obtain and exchange information, the application of FATCA to financial institutions in the FATCA Partner jurisdiction, and the procedures for compliance. Annex I describes the due diligence requirements for identifying and reporting on specific types of accounts under FATCA. Annex II will set forth a list of financial institutions and financial products that will be treated as exempt or deemed-compliant for the purposes of FATCA. Annex II will be tailored on a country-specific basis and therefore the Model IGA includes only the framework for Annex II.
What is the difference between an IGA Model 1 and Model 2 Agreement?
* Under the Model 1, FFIs in partner jurisdictions will be able to report information on US account holders directly to their national tax authorities (i.e., HMRC), who in turn will report the information to the IRS.
* In Model 2, financial institutions will report information directly to the IRS rather than their local jurisdictions.
How can I avoid FATCA?
Avoid US-sourced income, US investments and US investors/account holders and that should do the trick.

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant

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