What the FATCA?

The impact of FATCA on Cayman and BVI funds

After getting to grips with the EU Alternative Investment Fund Managers Directive, many Cayman and BVI fund compliance departments are now turning their focus to reviewing what they need to do to comply with the US Foreign Account Tax Compliance Act (FATCA). Although Cayman and BVI funds are not directly subject to FATCA, the Cayman Islands and BVI have each introduced legislation implementing FATCA requirements for ‘financial institutions’ to identify and report certain US accounts. The Cayman Islands and BVI have also each entered into an intergovernmental agreement with the United Kingdom (UK FATCA) which set out similar due diligence and reporting obligations for ‘financial institutions’ to identify and report certain UK accounts, without imposing a withholding tax regime for non-compliance (as applies under FATCA). The majority of Cayman Islands and BVI mutual funds fall within the definition of an ‘investment entity’ and are generally classified as a ‘financial institution’ for FATCA and UK FATCA purposes and so have information gathering and reporting obligations.

So far, Cayman and BVI funds have been reviewing their entity classification under FATCA, obtaining a Global Intermediary Identification Number (GIIN) from the United States Internal Revenue Service (IRS), appointing a FATCA responsible officer, obtaining self-certification forms from underlying clients (W8-BEN-E forms) and registering with the online portals recently set up by the Cayman and BVI tax authorities which funds will need to use to make their filings under FATCA.

Next steps are then to identify reportable accounts and to start to report information under FATCA to the local Cayman and BVI tax authorities. The reporting deadline for BVI funds is 31 July 2015 and for Cayman funds is 26 June 2015 (the original reporting deadlines having been extended recently by the Cayman and BVI tax authorities). The information which will need to be reported on US reportable accounts is the name, address and United States tax identification number of the accountholder, account number, name and GIIN number of the reporting financial institution and the account balance (some minimums apply). There is no obligation to file a nil return if the fund has no reportable accounts under FATCA.

In September 2015 the local tax authorities will start to report information to the IRS and in May 2016 the first obligation to report UK reportable accounts to local Cayman and BVI tax authorities under UK FATCA will start to apply (as well as ongoing reporting obligations applying under US FATCA for 2015). Other jurisdictions may also introduce legislation to implement similar tax information sharing arrangements over the next few months, so it promises to be a busy time for funds’ compliance teams.

Fiona Chandler
Experienced funds and corporate lawyer, loves to travel. Fiona lives in the UK.