New Tax Rules for FIIs

Last updated on December 18, 2013

Starting 2014, foreign financial institutions (FIIs) in countries that have FATCA agreements will be required to report to the IRS. Countries that have FATCA agreements with the United States include France, Switzerland, Norway, Ireland, Mexico, Denmark, Spain and Germany. FFIs in these countries are required to register with the IRS. In an effort to increase transparency in the financial activities of American taxpayers, the IRS wants FIIs to share information about financial accounts held by U.S. taxpayers or about foreign entities in which U.S. taxpayers have a substantial ownership interest.

Although FATCA become law in March, 2010, it will come into full effect in 2014. The deadline for FIIs in countries with FATCA agreements to register with the IRS is December 31^st, 2013. Certain FIIs are exempt from registering and reporting, such as most government entities, most non-profit organizations, certain retirement entities, and some small, local financial institutions.

FFIs that need to report to the IRS include depository institutions such as banks, custodial institutions, investment units, and certain kinds of insurance companies that have cash value products or annuities.

The penalty for non-compliance is heavy. FIIs that are required to register and report to the IRS face a 30 % withholding tax on specific U. S.-source payments made to them if they do not comply with FATCA rules.