Most clients of Serica Trust & Agency are not incorporated in the United States, and many have no U.S. entities in their corporate group. Despite this, Serica still requires its clients to confirm their status for U.S. tax purposes as part of its client due diligence (“CDD”) process. This is done by completing Part 2(A) of Serica’s CDD form and, if necessary, completing the applicable U.S. tax form.
This article explains why Serica is obliged to collect this information.
The Foreign Account Tax Compliance Act (“FATCA”) is a tax law that was enacted in the U.S. in March 2010. FATCA aims to reduce or eliminate U.S. tax evasion by U.S. individuals and businesses that are investing, operating, and earning taxable income abroad. It does so by obliging foreign financial institutions and certain other non-financial foreign entities to report on the foreign assets held by their U.S. account holders or be subject to a 30% withholding tax (by way of penalty) on certain withholdable payments. “Withholdable payments” may include income generated from the U.S. financial assets held by foreign financial institutions, such as interest and dividends.
FATCA is most obviously intended to apply to non-U.S. banks that hold offshore bank accounts for U.S. taxpayers but, due to the broad definition given to “foreign financial institutions”, applies equally to financial service providers such as Serica.
The Common Reporting Standard (“CRS”) is an internationally agreed standard for the automatic exchange of financial account information between jurisdictions for tax purposes, to better combat tax evasion and ensure tax compliance.
To comply with their obligations under FATCA and the CRS, foreign financial institutions like Serica are required to submit annual reports identifying financial accounts held by tax residents of reportable jurisdictions to their home tax authorities which are then exchanged on a reciprocal basis with tax authorities in other jurisdictions.
To do so, Serica needs to ascertain the tax status of each of its clients as part of its due diligence process. We do this by asking each client to:
This is required even if a client has no connection to the United States.
Serica only requires clients to complete a U.S. tax firm if they do not constitute one of the types of institutions listed in Part 2(A) of Serica’s CDD form.
U.S. tax residents are required to complete a W-9 Form. Non-U.S. tax residents should complete the applicable W-8 form. There are five W-8 forms: W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY. Determining which one is applicable to a particular client depends on whether that client is an individual or an entity, the type of income it receives, and whether it is an organisation that qualifies for special tax treatment.
Serica Trust & Agency is not permitted to offer tax advice and recommends that clients consult a tax specialist if they are unsure of the appropriate U.S. tax form to use.
FATCA and the CRS only oblige Serica to report on its “financial accounts”, meaning it is not relevant to matters which do not involve Serica holding financial assets for the benefit of another. Serica will consider whether its requirement that a client provide details of its tax status can be waived on a case-by-case basis.
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