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FATCA FAQ

What is FATCA ?

FATCA stands for Foreign Account Tax Compliance Act (FATCA), which was introduced by the US Government in October 2009, but became law as part of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA is aimed at ensuring that US persons with financial assets outside of the US are pay US tax.

Under FATCA, Foreign Financial Institutions (FFIs) have to report accounts of US persons to the US Inland Revenue Service (IRS) either directly or indirectly. They have the option of entering into agreements directly with IRS, or through the Inter-Governmental Agreements (IGA’s) signed by their home countries.

Government of India has signed an Inter-Governmental Agreement (IGA) with the Internal Revenue Service, Government of U.S.A.

Objective of FATCA ?

The objective of FATCA is to detect, deter, and discourage offshore tax evasion by U.S. citizens or residents by requesting information about U.S. persons to increase transparency for the U.S. Internal Revenue Service (IRS) and imposing a withholding tax where the applicable documentation and reporting requirements are not met. FATCA’s provisions are designed with incentives for FFIs and USWAs to provide information to the IRS on financial accounts held by U.S. persons:

  • Directly investing outside the U.S.; or
  • Indirectly investing through a non-U.S. entity
Obligations under FATCA ?

FATCA requires US persons including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires non- US financial institutions to report details of their US clients to the relevant tax authorities.

Who is a US person ?

A U.S. person is:

  • A citizen or resident of the United States (including a green card holder).
  • A partnership, corporation, estate, trust incorporated or created under U.S. law (U.S. incorporated entity)
  • A non U.S. incorporated entity having shareholding of 10% or more or ownership (Substantial Ownership) held by
    • An Individual who was born in the U.S. or is a U.S. citizen or a U.S. resident (including green card holder) or has a U.S. address or U.S. mailing address or U.S. ‘in care of’ or ‘hold mail’ as a sole address.
    • A U.S. incorporated entity as described above.
What is an FFI ?

An FFI is a foreign financial institution, which is any non-U.S. entity that:

  • Accepts deposits in the ordinary course of a banking or similar business;
  • As a substantial portion of its business, holds financial assets for the account of others;
  • Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities;
  • Is a specified insurance company; or
  • Is a holding company or treasury center

Generally non-U.S. entities such as banks, broker/dealers, insurance companies, hedge funds, securitization vehicles, and private equity funds will be considered FFIs

What is the impact of FATCA in India ?

The Government of India has entered into an Inter-Governmental Agreement (IGA) with Internal Revenue Service (Government of US) for implementation of FATCA. In view of this all banks and other financial institutions in India will be required to identify, establish and report information on financial accounts held directly or indirectly by US persons.

Is FATCA applicable to both personal accounts and business accounts ?

FATCA legislation will affect both personal and business customers who are treated as ‘US Person’ for US tax purposes. The FATCA legislation will also affect certain types of businesses with US owners.

What will be required of Bank ?

The Bank must:-

  • Undertake certain identification and due diligence procedures involving our new customers
  • Fulfill reporting requirements as may be defined by RBI/tax authorities in this regard. Therefore we would be reviewing our existing customer base to confirm our customers’ FATCA status, and where necessary we may contact our customers for further information and documentation.
What happens if I am a US person ?

If you are a US person you may have to submit some additional information and documentation. Please visit the IRS web site in this regard.

Will FATCA be applicable to me if am not a US person ?

In general FATCA does not apply to non- US persons. However, if any one of the indicators mentioned below is found, you may be required to provide additional information/documentation to determine if you are a US Person under FATCA.

  • US citizenship or US residence
  • US place of birth
  • US address including US PO boxes
  • US telephone number
  • Repeating payment instructions to pay amounts to a US address or an account maintained in the US
  • Current Power of Attorney or signatory authority granted to a person with a US address
  • If ‘Care of’ or ‘Hold mail’ address which is the sole address for the account holder
What happens if one of the joint owners is a US person ?

A joint account that has one US owner is treated as a US account and the entire account is subject to reporting as US person.

What will happen in case of a non US incorporated company? Will FATCA be applicable ?

Yes. FATCA covers a wide range of entities and not just US incorporated entities

How frequently will I have to provide information for FATCA purposes ?

FATCA is an ongoing process. If there is a change in the account information, we may be required to contact you to obtain additional information/documentation.

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