On January 17, 2013, the Internal Revenue Service (IRS) and Treasury Department issued long-awaited final Treasury Regulations (Final Regulations) under FATCA. To avoid a 30% withholding tax on "withholdable payments," FATCA will require certain foreign financial institutions (FFIs) to identify U.S. account holders and report that information to the IRS. "Withholdable payments" generally include U.S.-source dividends, interest and certain other income, as well as gross proceeds from the disposition of property that can produce U.S.-source interest or dividends.
The Final Regulations extended the deadline for FFI registration from June 30, 2013 to October 25, 2013, in order to be exempt by January 1, 2014. This registration will be done through an online IRS portal.
The Final Regulations also extended some of the FATCA withholding deadlines for pre-existing investors:
- For U.S.-source dividends, interest and certain other income,
- January 1, 2014 for investors admitted on or after January 1, 2014.
- July 1, 2014 for investors admitted before January 1, 2014 who are "prima facie" FFIs.
- January 1, 2016 for all other investors admitted before January 1, 2014.
- For gross proceeds from the disposition of property that can produce U.S.-source interest or dividends, January 1, 2017.
In addition, the Final Regulations clarify the interaction between FATCA Intergovernmental Agreements and the regulations. They also provide more detail on the information that must be provided to the IRS under an FFI agreement, and establish a procedure for an investment fund manager to consolidate FATCA compliance for all FFIs that it manages.
Please see our client alert for a more detailed summary of the Final Regulations.