FATCA regulations : what is there to know !

IRS final regulations have significantly increased the number of Monaco entities required to register.

The  final regulations for the Foreign Account Tax Compliance Act (FATCA) released by the U.S. Treasury Department and the Internal Revenue Service (IRS) allow us to inquire into the regulatory and procedural rules to follow.

The intent behind the law is for foreign financial institutions (FFIs) to identify and report U.S. persons that hold assets abroad to the IRS, and for certain non-financial foreign entities (passive NFFEs) to identify their substantial U.S. owners. In order to comply with the rules, FFIs are required to enter into an FFI agreement with the U.S. Treasury or comply with intergovernmental agreements (IGAs) entered into by their home jurisdiction with the U.S. Failure to enter into an agreement will result in the imposition of a 30% withholding tax on US source payments made to non-participating FFIs (i.e. FFIs not in an IGA country or not having entered into an agreement). Although it was clear from the start that all Monaco based banks will need to register with the IRS to become compliant, final regulations have extended the concept of investment entities in scope of the FFI definition. In Monaco, investment entities include Monaco based FCP, their management companies, portfolio managers as provided by the law n° 1.338, and also impact financial advisers and managers / family offices managing foreign investment entities / trust.

The considerations required of these FFIs can include the following (among others) :

*Entering into an FFI Agreement with the IRS or registering with the IRS or consider alternative statuses such as deemedcompliant status;

*Reviewing pre-existing accounts and classifying accounts into FATCA categories;

*Analyzing AML/KYC programs performed internally and by third party service providers to confirm compliance with FATCA requirements;

*Updating onboarding procedures to comply with FATCA requirements;

*Developing a governance structure for implementation and electing “Responsible Officer(s)” (RO) who are required to certify compliance;

*Creating a FATCA compliance program that contains the policies, procedures, controls and internal audit procedures required to comply with an FFI agreement;

*Identifying, reporting, and withholding on certain payments, on redemption, (or certain foreign pass-through payments at a later stage, etc.

Some of the specific action items for FFI to consider when developing their FATCA compliance programs are:

*Identify potential impacts and high risk profile of products and account holders/investors;

*Analyzing current organizational structures to determine whether any modifications can be made to reduce the impact of FATCA;

*Identifying organizational legal entities/funds or products that will be classified as an FFI under the FATCA regime;

*Updating legal documents to incorporate FATCA specific language;