The Foreign Account Tax Compliance Act (FATCA) is a new U.S. law intended to prevent U.S. investors from evading their tax obligations by investing through non-U.S. entities.

FATCA’s new reporting and withholding regime will significantly impact both U.S.-based companies and non-U.S. companies with U.S. assets or clients. Compliance will be enforced through a new 30% withholding tax on "withholdable payments" made to non-compliant non-U.S. entities. The mechanics of the new regime have largely been left to the U.S. Treasury Department (Treasury) to develop. Withholding will begin phasing in on 1 July 2014, although payments on certain obligations outstanding on 1 July 2014 (or later in some cases) may be eligible for a grandfathering exception.

Key Points

  • The preliminary guidance for FATCA was issued in stages: U.S. Internal Revenue Service (IRS) Notice 2010-60 (27 Aug. 2010), IRS Notice 2011-34 (8 April 2011) and IRS Notice 2011-53 (14 July 2011).
  • Treasury issued final regulations on 17 January 2013 that incorporate the changes made by Announcement 2012-42 and numerous other revisions to the proposed regulations.
  • IRS Notice 2013-43 (12 July 2013) revised timelines for implementation of FATCA and provided additional guidance for certain financial institutions.
  • On 19 August 2013, the IRS established an online FATCA Registration Portal (the Portal) through which foreign financial institutions (FFIs) can complete their registrations, agreements and certifications.
  • In 2014, the IRS will begin assigning a Global Intermediary Identification Number (GIIN) to each participating or registered-deemed compliant FFI that has registered through the Portal; the FFI will use the GIIN to establish its FATCA status.
  • Beginning 2 June 2014, the IRS will post electronically (and update monthly) a list of participating and registered deemed-compliant FFIs; an FFI must register by 25 April 2014 to be included on the 2 June 2014 list.