The Foreign Account Tax Compliance Act (FATCA) is a US legislation that was enacted on March 18, 2010 and that will enter into force on January 1, 2013. FATCA is essentially a regulatory reporting requirement for foreign financial institutions and foreign entities on their US account holder base. Banque Carnegie Luxembourg has recognized the critical need to comply with the FATCA requirements and intends to enter into an agreement with the IRS and become a ‘participating’ FFI (Foreign Financial Institution).

FATCA requires Financial Institutions to:

  • Identify US persons from their account base. "US persons" is a broad definition that requires new procedures for both individuals and entity accounts. If a customer does not provide the required information to determine if they are a US person within a reasonable period of time, the account will have to be closed.
  • Report information to the IRS on accounts held by US persons.
  • Deduct and withhold 30% tax on payments or pass-through payments to any client who fails to comply with the FATCA procedures. In order to fulfill that obligation, financial institutions must determine US cash flows for such clients, which in turn means that products need to be screened for the existence of US cash flows.

FATCA regulations have far reaching consequences for the financial industry, mainly on the procedures governing Know Your Customer (KYC), reporting on customers and possible withholding of tax on certain types of payments. Also, our financial products and operational processes might be impacted, particularly the withholding component. Moreover ‘participating’ FFI’s might be compelled to end their business relationships with ‘non-compliant’ FFI’s.

In case you are uncertain of your potential US tax status, we would like to advise you to contact your tax advisor and/or refer to the information published by the IRS.

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