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Due Diligence

Laven FATCA Series, 2 of 3: Investor Due Diligence

Posted on 16 Jun 2014

June 16 2014

Complying with the Foreign Account Tax Compliance Act (FATCA) can essentially be broken down into three distinct areas.
– Registration
– Due Diligence
– Reporting

The first paper in our series highlighted the requirements for FATCA registration. This paper delves into the requirements for carrying out necessary due diligence on existing and new accounts.

1.0 Existing Accounts

In order to act in compliance with FATCA regulations and policies, a Foreign Financial Institution (“FFI”) must conduct investor due diligence on existing individual and entity accounts.

1.1 Existing Individual Accounts
Existing individual accounts with a value greater than $50,000 but less than $1,000,000 are subject to FATCA’s due diligence requisites between 30 June 2014 and 30 June 2016. These requisites demand that the FFI confirms that the investor is an individual investor and not an entity. Furthermore, the FFI will need to determine the investor’s FATCA status by searching electronic records for U.S. indicia associated with the investor. Should the FFI find any U.S. indicia, then the investor will be classified as a U.S. reportable account unless the investor is able to procure documentation that proves they are not a U.S. citizen or U.S. resident for tax purposes.

Existing individual accounts with a value greater than $1,000,000 will be subject to those due diligence requisites noted above as well as a thorough manual review of paper records in order for the FFI to capture all available U.S. indicia that might have gone amiss in the previous electronic search. The FFI will also conduct interviews with the investor’s relationship manager in order to assess whether or not the relationship manager is knowledgeable of the investor being a U.S. citizen or resident.

1.2 Existing Entity Accounts
Existing entity accounts must be reviewed and assessed should the entity exhibit an account value exceeding the threshold of $250,000 as of 30 June 2014, or exceeding $1,000,000 on the last day of 2015 or any subsequent calendar year.

For entities subject to the review, the FFI will review information maintained for regulatory or customer relationship purposes to determine whether or not the investor is a U.S. person, a US Financial Institution, a Non-Participating Financial Institution, or a Non-Financial Foreign Entity (“NFFE”).

2.0 New Accounts

New accounts are subject to FATCA due diligence where certain criteria are met. FFIs without an IGA agreement or in a jurisdiction with a Model 2 IGA, new account reporting begins July 1, 2014. FFIs in a jurisdiction with a Model 1 IGA, new account reporting begins January 1, 2015.

2.1 New Individual Accounts
Individual accounts that meet the minimum reporting requirements are subject to a self-certification documentation request, using W or W8BEN forms. The documentation provided enables the FFI to evaluate whether or not the new individual account should be treated as a U.S. Reportable Account.

New individual accounts are subject to review if a depository account opens with a balance that exceeds $50,000.

2.2 New Entity Accounts
New entity accounts must be reviewed by the FFI in order to be deemed as a domiciled financial institution, a partner jurisdiction financial institution or an NFFE.

Any entity categorized as a Non-Participating Foreign Financial Institution would be subject to withholding and having their payments reported to either the local tax authority or directly to the IRS, depending on the jurisdiction.

NFFEs are subject to self-certification documentation requests to determine their tax reporting obligations.

3.0 Are You Prepared?

With two weeks until the first due diligence deadline, it is imperative that firms are aware of the steps they must take to comply with FATCA and its due diligence requirements.

Laven Partners is here to help. We offer tailored FATCA compliance policy programs to assist with FATCA compliance and the investor due diligence process.

Call Laven Partner’s Tax Compliance Desk to speak with our FATCA specialists today.