Non-FACTA account holders facing 30% penalty tax

A new anti-tax evasion measure that slaps a hefty withholding tax on money spirited into non-compliant foreign entities has now come into effect.

Under the Foreign Account Tax Compliance Act (FACTA), Foreign Financial Institutions (FFIs) and any Non-Financial Foreign Entities (NFFEs) that are not exempt must register with and supply information to the IRS regarding any US citizens with more than $50,000 in their accounts. The approved FFI list, published today, covers nearly 88,000 organisations that have agreed to comply with the new rules, including 6750 in the UK and over 17,000 in the Cayman Islands alone. These include banks, mutual funds and investment entities such as hedge funds and private equity funds. Some smaller, local entities are exempt, as are most governmental and non-profit institutions.

Payments made from US financial institutions into noncompliant foreign entities – i.e., those who are neither exempt nor on the list – will now be subject to withholding taxes of up to 30%. Goldman Sachs has already issued an addendum warning that its mutual fund scheme is likely to be categorised as a FFI, but that “no assurances can be provided that the Scheme will be able to enter into and comply with an FFI Agreement and that the Scheme will be exempt from this 30% withholding tax.

FATCA rules and tax obligations apply to all US companies and citizens, no matter where in the world they are based. Last year, according to Forbes, a record 2999 Americans relinquished their citizenship, with numbers rising year-on-year since 2010, when FACTA became law.


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