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FAQ's on FATCA / CRS

 

FATCA is an acronym for the Foreign Account Tax Compliance Act, a new set of US Tax Regulations brought in by the US govt. and enacted through the Internal Revenue Service (IRS), which is similar to Income Tax Department in India.

FATCA stands for The Foreign Account Tax Compliance Act (FATCA).  In 2010, USA enacted a law known as FATCA with the objective of tackling tax evasion through obtaining information in respect of offshore financial accounts maintained by USA residents and citizens. FATCA requires non-US Foreign Financial Institutions (FFIs) and non-US Non-Foreign Financial Entities (NFFEs) to disclose their US account holders or become subject to a new 30% US withholding tax. The provisions of FATCA essentially provide for 30% withholding tax on US source payments made to Foreign Financial Institutions unless they enter into an agreement with the Internal Revenue Service (US IRS) to provide information about accounts held with them by USA persons or entities (firms/companies/trusts) controlled by USA persons. FATCA is mainly to combat tax evasion by US persons with accounts held outside the US and who do not declare their taxable income or gains for US tax purposes.  The FATCA Regulations have become effective from July 01, 2014.

Since domestic laws of sovereign countries (including India) may not permit sharing of client confidential information by FIs directly with USA, USA has entered into Inter-Governmental Agreement (IGA) with various countries. The IGA between India and USA was signed on 9th July, 2015. It provides that the Indian FIs will provide necessary information to the Indian tax authorities, which will then be transmitted to USA periodically. Under the IGA, USA will also provide substantial information about Indians having financial assets in USA.

FATCA applies to every Foreign Financial Institution and require FFIs to implement procedures to identify account holders, perform due diligence and retain documentary evidence of their account status.  The FFIs must identify US accounts and any non-FATCA compliant accounts, report details of such accounts (effective from July 01, 2014) to the local tax authority and apply withholding tax on these accounts from 2017. ​

If none of the indicia are discovered, and the account is not identified as held by a reportable person, then further action is not required until there is a change in circumstances which results in one or more indicia being associated with the account;

If any of the indicia is discovered, or if there is a subsequent change in circumstances which results in one or more indicia being associated with the account, then the reporting financial institution shall treat the account as a reportable account with respect to each country or territory outside India for which an indicium is identified​. 


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    FATCA / CRS Glossary:


Term

Description

AEOI

Automatic Exchange of Information

CRS

Common Reporting Standard

Curing documents

Acceptable documentary evidence to support that an investor is not a U.S. citizen or U.S. tax resident. 

FATCA

Foreign Account Tax Compliance Act

IRS

IRS is the acronym for U.S Internal Revenue Service – a government agency responsible for tax collection and tax law enforcement. Similar to Income Tax Department in India

FFI

Foreign Financial Institution

GIIN

US-issued identifier:  Global Intermediary Identification Number issued to an FFI

IGA

Intergovernmental agreement between the US and other countries

NFFE

A Non Foreign Financial Entity is a foreign entity outside of the United States that is not engaged in business as a financial institution (such as a bank, investment fund, or investment entity).

Active NFFE

Active Non Foreign Financial Entity which meets the requirements in Model 1 IGA, Section VI (B) (4).

Passive NFFE with no substantial US owners

Passive Non Foreign Financial Entity (which meets the definition in Model 1 IGA, Section VI(B)(3), which does not have substantial U.S. owners.

MCAA

Multilateral Competent Authority Agreement

Non-Participating FFI (NPFFI)

Non-Participating Foreign Financial Institution. A Foreign Financial Institution (FFI) that has not entered into an FFI agreement with the IRS and/or is not complying with FATCA regulations.

Non-Reporting FFI

Refers to any [FATCA Partner] Financial Institution, or other entity resident in [FATCA Partner], that is identified in Annex II in the Model 1 IGA as a Non-Reporting [FATCA Partner]Financial Institution or that otherwise qualifies as a deemed-compliant FFI, an exempt beneficial owner, or an excepted FFI under relevant U.S. Treasury Regulations.

Participating FFI

A Foreign Financial Institution (FFI) that has entered into an FFI agreement with the IRS.

PMLA

Prevention of Money Laundering Act 2002

Undocumented investor

An investor that does not comply with reasonable requests for information necessary to determine whether that investor is a “US person” or not

Reporting FFI

Means any [FATCA Partner] Financial Institution that is not a Non-Reporting [FATCA Partner] Financial Institution.

Sponsoring Entity

Entity that registers with the IRS to undertake the FATCA responsibilities on behalf of sponsored  entities

TIN

Tax Identification Number in country of tax residence

 

 

 

    If you have any questions about your tax residency, please contact your tax advisor.​