A Beginner’s Guide to FATCA

REGULATE!Every year, the month of July dependably brings about its annual mile markers: the beginning of a new quarter, the arrival of summer weather, and the second half of the year. This year, it also brought a not-so-little something extra for everyone in the financial sector.

The Foreign Account Tax Compliance Act, called ‘FATCA,’ is officially in effect as of July 1st, 2014. While it wasn’t exactly judgment day or the apocalypse, it begot something that financial managers may consider equally damning: government regulation. Here’s what you should know.

FATCA requires non-US financial institutions—known as Foreign Financial Institutions (FFIs)—to report on deposits or assets owned by US citizens or residents. It primarily helps curtail tax evasion with foreign accounts, but it will affect all people with any kind of foreign financial involvement. This includes US taxpayers with money in foreign accounts and any non-US banks, asset managers, hedge funds, private equity funds, custodians, or brokers that are catering to US clients.

July 1st marked the official FATCA start date, but the law has been in effect since March of 2010. A recent update by the IRS extended some of the law’s provisions until 2016, giving firms a two-year period to ease into some of the requirements. Important dates to keep in mind:

  • July 1st, 2014: FATCA withholding  on FDAP (Fixed, Determinable, Annual, Periodical) income payments to non-participating FFIs, non-compliant NFFEs and recalcitrant account holders begins
  • July 1st, 2014: New account onboarding  process goes into effect
  • July 1st, 2015: Due diligence on pre-existing individual investors
  • July 1st, 2016: Due diligence on pre-existing entity investors

It sounds overwhelming, but the regulators did give firms some breathing room. The two-year phasing-in of key requirements is a way for regulators to jump-start the processes that FATCA entails and bring the law to full force by 2016.

The greatest burden on FFIs will be reporting, due diligence, and identification of US investors. Advent’s Geneva World Investor will help make these new operational requirements a lot more streamlined and easier to implement. This integrated fund and investor accounting platform will provide comprehensive views of the firm’s investor base, allowing for easier identification, classification, tracking, and reporting on the FATCA status of individual investors.

While there has been a great amount of emphasis placed on the July 1st deadline, some firms began their due diligence on FATCA as early as 2010, the year this regulation became law. Advent can help by shouldering some of this compliance burden as firms continue to navigate through a complex terrain of many new regulations.

Martin Sreba has been with Advent since 2000, holding a variety of senior roles in product services and sales. Currently he is a Principal in the Global Accounts Sales Organization.
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Posted in Regulation, Compliance, and Security

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