The deadline for compliance with both US FATCA and UK FATCA fast approaches.
Cayman entities which are classified as Financial Institutions are within the scope of FATCA. A typical Cayman fund will fall within the definition of a Financial Institution, however there are many other Cayman entities and structures which may be caught by the FATCA definition which is wider than the normal meaning of the expression.
All Cayman entities should consider their classification for FATCA purposes. Classification can be a difficult exercise and further guidance is available from Harneys if required. In most cases, we can provide a fixed quote for provision of this service.
In relation to US FATCA, entities which fall within the definition of a Financial Institution but which have either no US sourced income and/or no Specified US Persons (as defined under FATCA) as shareholders, partners, unitholders, investors, or other account holders (each an “investor”) will still need to comply with the requirements set out below. Similarly, entities which fall within the definition of a Financial Institution but which have no Specified UK Persons will still be required to comply with UK FATCA.
The Cayman implementation legislation contains financial and criminal sanctions for failure to comply.
A Cayman entity which is required to comply with FATCA has the following obligations:
1. Register online with the IRS by December 22, 2014 to obtain a Global Intermediary Identification Number (GIIN). Failure to obtain a GIIN by December 22, 2014 may have the result of a 30 per cent withholding imposed by certain counterparties on US sourced income.
2. Appoint a Responsible Officer. The Responsible Officer will be required to deal with the IRS online registration, certify that certain information (entered as part of the online registration) is accurate, and certify that the Cayman entity will comply with its FATCA obligations.
3. Implement a comprehensive FATCA compliance program and carry out due diligence on investors in order to meet the reporting requirements.
4. Report relevant FATCA information to the Cayman Islands Tax Information Authority.
5. The first reporting year is 2014 and so the first round of information will require to be supplied to the Cayman Tax Information Authority by 31 May 2015 in relation to US FATCA. Cayman entities with no reportable investors must make a filing to that effect by 31 May 2015.
Where a continuing offering is being made by a fund to investors, offering and subscription documents should be reviewed by Cayman Islands legal counsel and revised to notify investors of the impact of FATCA and to ensure that investors provide information which will enable that fund to carry out its FATCA due diligence. Harneys can provide a fixed quote for this service.?