What is FATCA?Get an overview of the provisions outlined in FATCA and use our interactive timeline to see key dates in the implementation process.
FATCA is signed into law
The FATCA provisions are signed into law as part of the Hiring Incentives to Restore Employment (HIRE) Act.
IRS issues the first round of FATCA guidance
The IRS issues Notice 2010-60, which includes the definition of a foreign financial institution (FFI), certain FATCA exemptions, and account documentation and reporting requirements.
IRS issues the second round of FATCA guidance
The IRS issues Notice 2011-34, which revises certain requirements introduced in Notice 2010-60 and provides further guidance on "priority concerns," including passthru payments.
IRS issues the third round of FATCA guidance
The IRS issues Notice 2011-53, which provides additional time for participating FFIs to enter into FFI agreements and to meet FATCA requirements associated with account identification, information reporting, and withholding.
IRS issues revised Notice 2011-53
The IRS issues revised Notice 2011-53, which clarifies that the revised withholding timeline in Notice 2011-53 applies to payments made by all withholding agents to both FFIs and Non-Financial Foreign Entities (NFFEs).
IRS releases proposed regulations
The IRS issues proposed regulations with significant changes and clarifications
to prior guidance, including updated timelines for grandfathered debt
obligations, reporting, and withholding.
IRS issues draft Model Intergovernmental Agreement (IGA) Model 1
The draft Model 1 IGA reflects the approach whereby FFIs will report information on certain account holders to their national tax authorities, which will in turn provide such information to the United States under an automatic exchange of information.
First IGA signed based on Model 1
United States and United Kingdom sign agreement on international tax compliance and FATCA implementation based largely on the draft Model 1 IGA.
IRS issues Announcement 2012-42
The IRS issues Announcement 2012-42, which revises certain timelines for withholding agents (both USWAs and other WAs) and participating FFIs (PFFIs) to complete due diligence and other requirements related to FATCA, provides extended timelines for gross proceeds withholding, and expands the definition of obligations that will be considered grandfathered for purposes of the FATCA provisions. All changes to be reflected in the final regulations.
IRS issues draft Model Intergovernmental Agreement (IGA) Model 2
The Model 2 IGA addresses potential conflicts of law which would make it difficult for financial institutions in certain countries to comply with FATCA. Model 2 IGA differs from Model 1 IGA in certain ways. Notably, FFIs under Model 2 IGA will report directly to the IRS, and countries that have signed a Model 2 IGA will not benefit from reciprocity.
Final FATCA regulations issued
The final regulations address many of the major items requiring further clarification following the proposed regulations issued in February 2012.
First IGA signed based on Model 2
United States and Switzerland sign agreement on international tax compliance and FATCA implementation based largely on the draft Model 2 IGA.
FATCA Registration Portal expected to open on or before 15 July 2013
The online process for registering as a PFFI, a registered Deemed Compliant FFI, a limited FFI or a sponsoring entity will be opened no later than 15 July 2013.
Earliest FFI agreement effective date
The earliest possible effective date for an FFI agreement entered into on or before 31 December 2013 will be 31 December 2013.
Grandfathered obligation cutoff
FATCA withholding is not required on obligations outstanding on 1 January 2014 (unless they are materially modified subsequent to 1 January 2014). Obligations to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional principal contract (NPC) that is a grandfathered obligation are also grandfathered.
Onboarding new accounts
FATCA-compliant onboarding processes/systems for new accounts of both USWAs and PFFIs must be operational.
Accounts opened prior to 1 January 2014 will be considered pre-existing for USWAs and PFFIs.
FATCA withholding begins
USWAs (and other WAs) and PFFIs must withhold on US Fixed, Determinable, Annual, Periodic (FDAP) payments to new accounts held by documented non-participating FFIs (NPFFIs).
PFFIs must withhold on US FDAP payments to recalcitrant accounts.
Complete Due Diligence for prima facie FFIs
With respect to pre-existing obligations, USWAs and other WAs, other than participating FFIs, will be required to document pre-existing payees that are prima facie FFIs by 30 June 2014. PFFIs will be required to document these prima facie FFI payees by the later of 30 June 2014, or six months after the effective date of the FFI Agreement.
Withhold on FDAP payments to undocumented NPFFIs (prima facie FFIs)
WAs, USWAs and PFFIs must begin treating undocumented prima facie FFIs as NPFFIs after the 30 June due diligence deadline (or, for PFFIs, six months after the effective date of the FFI agreement, if later) passes until the date the withholding agent obtains documentation sufficient to establish a different Chapter 4 status for the payee. Therefore, these withholding agents must withhold on withholdable payments made to these NPFFIs.
USWA and FFI grandfathered obligation cutoff for dividend equivalents
Obligations that give rise to a dividend equivalent [pursuant to §871(m)] are grandfathered until the date the obligation is first subject to dividend equivalent treatment plus six months.
FFIs complete due diligence for high-value (HV) individual accounts
PFFIs must complete due diligence on high-value accounts within one year of the effective date of their FFI agreement.
FFIs begin withholding on US FDAP payments to recalcitrant high-value accountholders
PFFIs begin withholding on high-value accounts identified as recalcitrant.
USWAs and PFFIs — for pre-existing obligations, begin withholding on payments to certain passive NFFEs
USWAs and PFFIs begin withholding on payments to certain passive NFFEs with respect to pre-existing obligations.
1042-S reporting for USWAs, WAs, and PFFIs
Reporting on Forms 1042 and 1042-S regarding US FDAP payments to foreign entity recipients begins.
USWAs and PFFIs begin reporting of owner-documented FFIs
USWAs and PFFIs report owners of documented FFIs.
USWAs begin reporting of US substantial owners of passive NFFEs
USWAs report on NFFEs with substantial US owners.
US account reporting for PFFIs (year-end 2013 and year-end 2014)
PFFIs begin annual reporting of account balances and identifying information for year-end 2013 and year-end 2014.
Information to be reported includes: name, address, Tax Identification Number (TIN) and account number of either (1) the account holder, who is a specified US person; (2) the NFFE that is US-owned (TIN if available) and of each substantial US owner of such entity; or (3) the owner-documented FFI (ODFFI) and of each specified US person owner of the ODFFI. Participating FFIs will be required to file reports 31 March 2015 with respect to the reporting year-end 2013 and year-end 2014 account balances.
Reporting of recalcitrant accounts (year-end 2013 and year-end 2014)
PFFIs begin annual reporting of the aggregate number and value of year-end recalcitrant accounts broken out by US persons, those with US indicia, those without US indicia, passive NFFEs and dormant accounts for year-end 2013 and year-end 2014.
Complete due diligence for all remaining accounts
Pre-existing obligations: USWAs and WAs, other than participating FFIs, will be required to document all remaining accounts by 31 December 2015. Undocumented entity accounts and payees will be treated as NPFFIs after that date.
Pre-existing obligations: PFFIs will be required to document all remaining accounts by the later of 31 December 2015 or six months after the effective date of their FFI Agreement. Undocumented entity accounts and payees will be treated as NPFFIs, and undocumented individual account holders will be treated as recalcitrant after that date.
PFFIs begin withholding on all recalcitrant individual accounts and undocumented entity accounts that were pre-existing accounts. USWAs and WAs begin withholding on all undocumented entity accounts that were pre-existing accounts.
Limited FFI/limited branch status expire
Members of a PFFI's expanded affiliated group and branches with local law restrictions to compliance will no longer be able to claim the limited FFI or limited branch exemptions from compliance.
PFFIs: Responsible officer makes certifications related to due diligence and FATCA anti-avoidance
Responsible officer must certify that the high-value pre-existing individual account due diligence is complete, that all account due diligence is complete and that all documentation requirements are complete, or if no documentation is obtained, account is treated as a recalcitrant account.
Report source payments
PFFIs: Reporting begins for non-US reportable amounts and US FDAP payments made to NPFFIs for year-end 2015.
Include income information
PFFIs: Annual reporting for US accounts includes payments other than gross proceeds for year-end 2015.
Ability to rely on old Form W-8s expire
USWAs’ ability to rely on old Form W-8s from certain payees expires after 31 December 2016.
Withholding on gross proceeds begins for USWAs, WAs and PFFIs
USWAs, WAs and PFFIs are required to withhold on gross proceeds payments made to recalcitrant individual and entity accounts.
PFFI withholding on foreign passthru payments
Finals regulations "reserved" on definition of foreign passthru payments. Any required withholding on such payments will not occur before 1 January 2017.
FFI grandfathered obligation cutoff for passthru payments [Date TBD]
Obligations that produce or could produce a foreign passthru payment (that cannot produce a withholdable payment) are grandfathered until the date final regulations are issued defining the term “foreign passthru payment” plus six months.
FATCA reporting adds gross proceeds
PFFIs: US account reporting to include gross proceeds on sales or redemption of property in custodial accounts.
Source payment reporting begins
PFFIs: Reporting begins for non-US FDAP payments made to NPFFIs for year-end 2016.
PFFIs: Begin every three-year certification by responsible officer that FFI has effective internal controls
Once every three years, the responsible officer must certify to the IRS that the PFFI is in compliance with the FFI agreement and make a certification on effective internal controls.
Gross proceeds included
PFFIs, WAs and USWAs include US gross proceeds for year-end 2017 subject to withholding on Forms 1042 and 1042-S.
FATCA affects the whole value chain and requires completely new and extended information and reporting systems.
The Foreign Account Tax Compliance Act (FATCA) is a new US law aimed at foreign financial institutions (FFIs) and other financial intermediaries to prevent tax evasion by US citizens and residents through use of offshore accounts. The FATCA provisions were included in the HIRE Act, which was signed into US law on 18 March 2010.
FATCA will have a far-reaching impact on US-based companies as well as foreign companies with US assets or clients. Under the new provisions, a FFI may enter into an agreement with US tax authorities (a.k.a. the Internal Revenue Service, or IRS) requiring it, among other things, to report information on the FFI's US accounts. A FFI that enters into such an agreement becomes a "participating FFI."
If a FFI does not enter into an agreement with the IRS, all relevant US-sourced payments, such as dividends and interest paid by US corporations, will be subject to a 30% withholding tax. The same 30% withholding tax will also apply to gross sale proceeds from the sale of relevant US property.
All FFIs must comply with FATCA or be subject to withholding. Given the significant lead times large companies may need to comply with FATCA requirements — particularly for IT system changes — financial leaders are strongly encouraged to act now.
For participating FFIs, investments will be needed in three key areas:
- Documentation: capturing process changes and analyzing the customer base.
- Withholding: building functionality for withholding on recalcitrant account holders.
- Reporting: building and sustaining an annual reporting model for all US individuals to cover account balances and gross payments.
To help financial institutions comply with FATCA, Treasury and the IRS have issued the following recent guidance:
Webcasts and videos
- Jill Nicolson, Partner, Canadian Institute’s FATCA compliance: implementing solid solutions to comply with the final regulations (Toronto, 30 May 2013)
- Dmitri Semenov, Partner, and Jim Kickham, Senior Manager, Financial Research Associates’ FATCA Implementation Summit (New York, 17 June 2013)
- Julian Skingley, EMEIA FATCA Lead, FATCA for banks: sector specific guidance on achieving operational compliance (London, 18 June 2013)
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