What is FATCA

Michał Gawlak

Michał Gawlak

Partner / Attorney-at-law

In March 2010, the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA), became law in the United States of America. FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts and focuses on reporting:

  • By U.S. taxpayers about certain foreign financial accounts and offshore assets.
  • By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest.

FATCA was enacted to prevent and detect offshore tax evasion. Based on the name and a quick reading of the rules, FATCA seems to be directed at financial institutions. Therefore, many global companies outside the financial services industry mistakenly believe that they are not affected. However, upon closer review, many realize the surprising fact that they have entities in their worldwide network falling under the purview of FATCA, or have operational areas that make or receive payments subject to FATCA.

What FACTA means for individuals that maintain financial accounts in Cyprus?

1. What information will my financial institution use to identify whether I could be subject to reporting? You may be contacted by your financial institution if one or more of the following indicia apply to you:

  • You have U.S citizenship or lawful permanent resident (green card) status
    U.S birthplace
  • You have a U.S residence address or a U.S. correspondence address (including a U.S P.O box)
  • You have a telephone number in the U.S.
  • You repeat payment instructions to pay amounts to a U.S address or an account maintained in the U.S
  • You have granted a power of attorney to a person with a U.S. address
  • You have an In-Care-Of or Hold-Mail address in the United States that is the sole address submitted to your institution

2. Will I be required to provide any additional information to my Cyprus financial institution in order to comply with FATCA provisions?

You might be asked about your tax residency status in connection with your existing accounts (if there is information associated with your account that suggests you may be a U.S. person) or when you open a new account. You might also be asked by your financial institution to provide certain evidence to support a claim that you are not a U.S. person if information associated with your account otherwise suggests that you may be a U.S. person. Financial institutions will need this information to satisfy their obligations under Cyprus law and to determine whether they have certain tax reporting obligations to the Tax department.

3. What processes may the financial institutions follow in order to identify U.S account holders?

The participating financial institutions will need to follow one or more processes for identification of account holders such as the indicia search and the self-certification process. The participating financial institutions may obtain a self-certification from an account holder where applicable. The Tax Department will issue a self-certification form that financial institutions may use. Therefore you might be asked by your participating financial institution to fill out a self-certification form for this purpose or the participating financial institution might have proceeded to a new comprehensive form of its account opening documents or to the preparation of an additional document in respect of FATCA provisions.

4. What types of accounts will be reported?

Participating Cyprus financial institutions will have to report accounts which include most bank accounts, mutual funds, brokerage accounts, custodial accounts, annuity contracts (including segregated fund contracts), and some life insurance policies with a cash value.

An account shall not be reportable if it falls within an exempt category in the Agreement.

5. How does my citizenship affect my tax residency?

Cyprus and virtually all other countries do not tax on the basis of citizenship. The citizenship you hold is generally not relevant in determining your residency for tax purposes.

The U.S. tax system is different from most countries in that it treats all U.S. citizens as U.S. residents for tax purposes no matter where in the world they reside. Therefore, if you are a U.S. citizen, you are a resident of the U.S. for tax purposes even if you hold another citizenship or reside in Cyprus or any other country.

6. Am I obliged to provide the information?

Cyprus financial institutions are committed to become fully FATCA compliant and hence your financial institution is entitled to ask you to provide the required documentation. In cases where customers fail to provide the appropriate documentation your participating financial institution must treat your account as a U.S. reportable account and report the account to the Tax Department.

7. What type of information will be reported to the U.S.?

Participating Cyprus financial institutions will generally have to report the following type of information:

  • Identifying information about the account holder (e.g. name, address, tax identification number)
  • Account number
  • Account balance or value at end of the year certain amounts paid or credited to the account

8. Do I have to provide my U.S. Taxpayer Identification Number?

Yes. Cyprus financial institutions will be obliged to ask for your U.S. TIN in connection with certain accounts. If you are a U.S. resident or U.S. citizen, you have to provide your U.S. TIN to your financial institution when asked.

9. I am not a U.S. person, but I have a joint account with a U.S. person. How does FATCA affect me?

A joint account which has one U.S owner shall be treated as a U.S account by a participating Cyprus financial institution. The participating financial institution will then report the full value of the account to the Tax Department. Identifying information (e.g. name, address, Taxpayer Identification Number) associated with U.S. owner will be reported. No information will be reported for the non U.S joint account holder.

10. I am a Cyprus resident and I hold accounts in the U.S. How does the Agreement affect me?

If your account is identified as a reportable account by your U.S. financial institution, then the account will be reported by the U.S financial institution to the IRS, which will transmit the information to the Cyprus Tax Department.

11. If I maintain several financial accounts in a financial institution, how will they be reported?

If you are identified as a U.S. person, your Cyprus financial institution will report each of your accounts individually to the Tax Department.

12. Could financial institutions be exempted from FATCA provisions?

Under the Agreement, a number of Cyprus financial institutions could be partially or fully exempted from the requirements to undertake due diligence and to report on U.S. account holders. For instance, smaller Cyprus deposit-taking institutions, such as credit unions, with assets under $175 million, may be exempted.

A partial exemption is available for a Cyprus financial institution if it is not part of a multinational group (i.e., it is not related to any entities organized outside of Cyprus) and at least 98 percent of its financial accounts are held by residents of Cyprus or other EU member states. These financial institutions will not be obliged to apply due diligence or report on accounts held by individuals who are Cyprus residents.

If you would like to know the status and obligations of a particular financial institution under the Agreement, please contact the financial institution directly.

13. I am a U.S. citizen living in Cyprus and I was not aware that the U.S. wants me to file tax returns. Does the signing of the Agreement mean that I now have to pay U.S. tax?

The Agreement is strictly an information-sharing agreement and does not involve any new or higher taxes.

FATCA does not replace the existing US tax regimes, as imposed to U.S citizens Unlike Cyprus, the U.S. taxes its citizens who reside in other countries on their worldwide income. The U.S. citizenship-based tax regime has been in place for many years and is not altered by the Agreement. For more information, please contact us and the U.S. IRS Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers.

14. Does the Agreement require Cyprus financial institutions to report to the Tax Department the accounts of individuals who relinquished their U.S. citizenship when they became Cyprus citizens?

The Agreement does not require Cyprus financial institutions to report on any individuals who have relinquished their U.S. citizenship and are no longer considered as citizens of the U.S.

Individuals who have relinquished their U.S. citizenship may be asked by their financial institution for documentation to support their claim.

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Michał Gawlak

Michał Gawlak

Partner / Attorney-at-law

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