The US government promulgated the Foreign Account Tax Compliance Act ("FATCA") in March 2010, requiring foreign financial institutions (“FFIs”), which include financial institutions located in PRC, to perform the account identification, reporting and withholding obligations with regard to the US Persons (as defined below). In respect of the non-participating FFIs (“NPFFIs”), the US financial institutions (“USFIs”) and participating FFIs (“PFFIs”) are obliged to withhold and deduct 30% tax for FATCA purpose as required by the US government when a payment of certain nature is made by them to an NPFFI from 1 July 2014 onwards.
Up to now, at least 212 financial institutions located in PRC (including PRC branches of offshore financial institutions) have filed registration with the US Internal Revenue Service (“IRS”) expressing their willingness to co-operate and have been confirmed by IRS to be PFFIs.
FATCA would impact bank financial institutions, trust companies, insurance companies, and those non-financial institutions that conduct asset management business, and various wealth management businesses (such as mutual funds, collective investment trust plans, asset management schemes for certain customers of fund management companies, etc.). Meanwhile, accounts held by US citizens, persons with US permanent resident cards, persons who have stayed or are staying in US for more than a certain period of time (collectively, “US Persons”), and accounts held by entities over which US Persons have actual control, when the balance or value of such accounts exceeds a certain threshold, will be reported in order to facilitate tax administration by IRS.
A person who receives or will receive proceeds from US, regardless of whether it is a financial institution, a non-financial institution or an individual, shall submit a Form W-8 or Form W-9 to the US payer as a self-certificate evidencing its FATCA status. Such person must indicate whether it is a PFFI, an NPFFI, a non-financial entity, a general individual, or a US Person.
Please double check your FATCA strategy before 1 July 2014 deadline of FATCA deduction:
- If registered, please at least ensure that your FATCA due diligence procedure has been duly prepared and implemented and your standard documentations have been duly amended to meet FATCA requirements.
- If not yet registered, please make sure that you will not be affected by FATCA deduction, or, you have already assessed the consequence of non-participation and such consequence is acceptable to you.
Although based on the publicly accessible information as of today, the PRC government has yet to reach an inter-governmental agreement (“IGA”) in relation to the implementation of FATCA with the US government in substance, we hold an optimistic view on its final conclusion.