Foreign financial institutions must update FATCA agreements by Oct. 24
The IRS has recently updated the Foreign Account Tax Compliance Act (FATCA) frequently asked questions (FAQs) webpage (see FATCA FAQs), giving foreign financial institutions (FFI) otherwise in compliance with their FFI agreements until Oct. 24, 2017, to renew their agreements in order to continue to be treated as participating FFIs. Prior to this, FFIs were required to renew their agreements by July 31, 2017, or risk being treated as a nonparticipating FFI as of Jan. 1, 2017.
As part of the new FATCA regime, withholding agents are generally required to withhold at a rate of 30 percent on certain payments made to an FFI. However, FFIs that have entered into an FFI agreement – so-called “participating FFIs”– will not be subject to the general 30 percent withholding rate. These agreements generally require the FFIs to report to the U.S. certain information about their U.S. account holders, and may need to be renewed from time to time.
FFIs that fail to renew their agreements by the new deadline – now Oct. 24, 2017 – will be treated as having terminated their agreements as Jan. 1, 2017, and will subsequently be removed from the IRS’ list of approved FFIs.
Institutions can use the FATCA registration website to determine whether their agreements are required to be updated, and if so, may use the same website to update their registration and submit to renew their FFI agreements.
With September right around the corner, it’s important for FFIs to assess their agreements and, if necessary, update and renew them as soon as possible. Those who fail to do so by the new October 24 deadline will likely face a steep, and potentially unexpected, withholding rate on certain U.S. source income.