The US Foreign Account Tax Compliance Act (“FATCA”) was enacted in response to concerns that US taxpayers were avoiding US tax by using offshore financial institutions to hide assets and avoid reporting income. Generally, FATCA imposes due diligence, information reporting and withholding obligations on non-US financial institutions (“FFIs”) and withholding obligations on other persons making withholdable payments to non-exempt non-US persons.
Corporate and trust service providers must understand the implications of FATCA and its compliance requirements. A wide range of entities fall within the category of “investment entities” which are also classified as FFIs and are subject to FATCA. Included within the investment entity category are most non-US investment funds as well as other non-US entities in an offshore fund structure (such as Global Schemes, GBC 1 or 2 investment holding companies in PE structures and CIS Managers in Mauritius).
If your firm, or the client entities for which you act, are FFIs as defined for FATCA purposes you will have to register with the Internal Revenue Service (IRS) in the United States via the IRS portal. The IRS allocate a unique Global Intermediary Identification Number (GIIN) to all registered Financial Institutions. Additionally, FFIs in Mauritius will need to make returns to MRA for onward transmission to the IRS.
If an FFI doesn't comply with their FATCA obligations and is non-participating, FATCA law and associated regulations will require withholding agents (including US withholding agents and certain foreign financial institutions) to impose a 30% penalty on withholdable payments that they make to the foreign financial institution.
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