Under the Foreign Account Tax Compliance Act
(FATCA) payments by US residents to foreign
financial institutions can be subject to a 30% withholding tax from
1 January 2013 unless the foreign financial institution meets
reporting obligations with the Internal Revenue Service
(IRS).
The purpose of the legislation is to stop perceived tax avoidance
by US residents investing in US investments via foreign funds and
to raise funds to meet the US stimulus package.
The payments that will be subject to the withholding include
interest, rents, royalties, dividends, salaries, compensation, and
gross proceeds received on the sale of shares and debt.
Funds investing in US investments appear to have two choices as a
result of this legislation. Prevent US residents from
investing in the fund and report to the IRS that there are no
direct or indirect US resident investors, or disclose the direct
and indirect US owners to the IRS.
Key parts of the new rules will be announced in notices issued by
the IRS. As a result there are currently many details
missing on how the system will work.
Please contact us if you would like assistance from a Moore
Stephens US firm on how these rules will affect your fund.
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