Local Banks Brace For US’ FATCA Regulations

Banks and other financial institutions in the Federation are bracing for the imminent implementation of the US’ FATCA regulations.

With the US Inland Revenue Service (IRS) Foreign Account Tax Compliance Act will come a drastic change to how local banks do business with US citizens and companies.

Under FATCA, financial institutions, service providers, and government agencies such as Inland Revenue, will have to report to the US government assets of over $50,000 belonging to customers and clients who are US citizens, persons with green cards, US Ex-pats and US-based entities.

Since 2012 the SKN government established a National FATCA Committee to manage the preparations for the implementation of the Act.

Over a four-day period, stakeholders in both St. Kitts and Nevis have attended a FATCA workshop facilitated by BDO International, a global tax and consulting company.

Representatives from the various institutions in Nevis attended their workshop July 7-8 hosted by the Nevis Financial Services Regulatory and Supervision Department in conjunction with the Ministry of Finance.

In St. Kitts, the Ministry of Finance workshop began yesterday and will wrap today, July 10.

Sylvia Gumbs, Deputy Financial Secretary in the Ministry of Finance said FATCA, enacted by the US government in 2010, is already affecting the way financial institutions around the world conduct business. She said the impact would go beyond the financial institutions and will be felt by their clients, who will be subjected to a higher level of due diligence.

Governments would also be affected as they are responsible for transmitting the sensitive data to the IRS.

“We are now at the point where we need to ensure that the necessary legislation, systems, and procedures are in place so that the Federation could be compliant with the Act,” she said.

“The consequences for non-compliance are significant and could cripple our financial services sector if we fail to be in state of readiness.”

Workshop participants were instructed on FATCA requirements, terminology agreements, classification, forms monitoring, due diligence, and reporting.

BDO Eastern Caribbean Managing Partner, Claudel Romney told the participants as they interact with customers and clients, they need to be familiar with FATCA regulations. He described FATCA as a very serious initiative based on US tax laws which are very complex and advised that countries ought to take it seriously.

With respect to the government’s preparations for FATCA, it has opted to sign an Inter-governmental Agreement (IGA) which will manage the exchange of information between the tax authorities of both countries.

Gumbs informed that the IGA has not yet been signed and they have been urging their contact at the US Embassy in Barbados to impress upon the relevant authorities in Washington for it to be concluded urgently.

She explained that the IGA being signed as soon as possible is critical since it has to form part of the FATCA domestic legislation that the St. Kitts-Nevis government has to take to parliament. She pointed out that all member states in the ECCU are in a similar position.

St. Kitts-Nevis is being treated as being compliant with the US law even though the agreement has not been signed.

Financial institutions will have to register with the IRS to avoid 30% withholding and other penalties.

Presently there is a draft FATCA Bill and draft regulations before the Attorney General’s chambers. In terms of IT solutions for the transmission of FATCA data, the government is at a very advanced stage of procuring the relevant software, Gumbs disclosed.

Jurisdictions have until September 30, 2015 to begin reporting on US account holders.