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Understanding the Impact of FATCA on BVI Entities

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Overview

The Foreign Account Tax Compliance Act (FATCA) has significant implications for financial institutions (FFIs) operating in the British Virgin Islands (BVI). In this article, we will summarize the key points and provide guidance on how to navigate the complex requirements of FATCA.

Key Points

Due Diligence Requirements

  • By June 30, 2015, FFIs were required to complete due diligence on existing accounts over $1 million.
  • For new accounts opened after July 1, 2014, FFIs must carry out due diligence and obtain self-certification regarding the account holder’s status as a Specified US Person.

Reporting Requirements

  • BVI FFIs had to make their first report to the BVI Reporting Authority by May 31, 2015, providing information about accounts held by Specified US Persons or non-US entities with controlling persons that are Specified US Persons.
  • Simplified reporting is available for groups of FFIs through the registration of a Sponsoring Entity.

Important Notes

IRS Notice 2014-33

  • Allows FFIs to treat new accounts opened before January 1, 2015 as “pre-existing,” subject to certain modifications of the compliance rules.
  • This notice provides relief for FFIs that have already onboarded customers and do not need to re-do due diligence.

Common Reporting Standard (CRS)

  • The CRS has become the global standard for automatic exchange of information and increased transparency.
  • This means that FATCA is just one part of a larger effort to increase international cooperation on tax matters.

Conclusion

FATCA imposes a significant compliance burden on FFIs, but its implementation can be seen as preparation for the new global standard on information exchange introduced by the CRS. BVI companies that are not FFIs will have limited impact from FATCA, except for determining their FATCA classification and certifying/evidencing their status to financial institutions with which they hold accounts.

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