CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. US Issues Final FATCA Regulations

US Issues Final FATCA Regulations

by Mike Godfrey,, Washington

21 January 2013

On January 17, 2013, the United States Treasury Department and the Internal Revenue Service (IRS) issued comprehensive final regulations implementing the information reporting and withholding tax provisions for foreign financial institutions (FFIs) under the Foreign Account Tax Compliance Act (FATCA).

FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, with FFIs. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.

In order to avoid the withholding tax under FATCA, a participating FFI will have to enter into an agreement with the IRS to identify US accounts, report certain information to the IRS regarding US accounts, and withhold the 30% tax on certain US-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information. FFI registration will take place through an online system.

The issuance of the final regulations is intended to "mark a key step in establishing a common intergovernmental approach to combating tax evasion," and to provide additional certainty for FFIs and foreign government counterparts by finalizing the step-by-step process for US account identification, information reporting and withholding requirements for FFIs, other foreign entities and US withholding agents.

"These regulations give the Administration a powerful set of tools to combat offshore tax evasion effectively and efficiently," said Deputy Treasury Secretary Neal Wolin. "The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and US financial institutions."

The Treasury confirmed that the final regulations build on intergovernmental agreements. It has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction.

While the start date of January 1, 2014, has not been extended, the final regulations also phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.

In addition, the scope of payments not subject to withholding is also extended and clarified. To limit market disruption and reduce administrative burdens, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.

For example, to align better the obligations under FATCA with the risks posed by certain entities, the final regulations expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and clarify the types of passive investment entities that must be identified and reported by financial institutions.

More streamlined registration and compliance procedures are also provided for groups of financial institutions, including commonly managed investment funds, and additional detail is given regarding FFIs' obligations to verify their compliance under FATCA.

Since the proposed regulations were published on February 15, 2012, the US Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA.

The models should serve as the basis for concluding bilateral agreements for the exchange of tax information with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA's policy objectives and further reduces burdens on FFIs located in partner jurisdictions.

Seven countries have already signed or initialed these agreements, and the Treasury announced that Norway has now joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have done so. It was further disclosed that Treasury is engaged with more than 50 countries and jurisdictions, and more signed agreements are expected to follow in the near future.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at and a description of the report can be seen at
TAGS: individuals | compliance | tax | investment | business | offshore confidentiality | tax information exchange agreement (TIEA) | Denmark | Ireland | law | banking | financial services | investment funds | Mexico | Norway | United Kingdom | offshore | agreements | withholding tax | Spain | Switzerland | United States | regulation | services

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »