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Report Examines Effect Of FATCA On Cayman Entities

by Mike Godfrey, Lowtax.net, Washington
12 November, 2014

International law firm Conyers, Dill & Pearman has published a detailed article on the impact of the US Foreign Account Tax Compliance Act on Cayman entities.

FATCA came into effect on July 1, 2014. It requires Foreign Financial Institutions (FFIs) to report information relevant for tax administration purposes about US persons' holdings in overseas financial accounts to US authorities. Failure by an FFI to disclose information about their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.

The report sets out the criteria for being considered an FFI and concludes that for the majority of Cayman companies, which are not considered FFIs under FATCA, it should be "business as usual".

It says that any Cayman entity that is not an FFI – such as a typical holding company – will be a non-financial foreign entity, or NFFE.

Although NFFEs are not generally subject to registration or reporting requirements, they will still be required to self-certify their status to financial institutions with which they maintain financial accounts to avoid FATCA withholding, the firm said.

Those entities that are classified as Cayman Islands FFIs must, on or before May 31, 2015, make their first report to the Cayman Tax Information Authority in relation to accounts held by Specified US Persons or a non-US entity with one or more controlling persons that are Specified US Persons. Other preparations should be made, such as obtaining a Global Intermediary Identification Number by December 31, 2014, as explained in depth in the firm's report.

Earlier this month, the firm produced a similar article examining the impact on BVI entities.

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