FFI Agreement for Participating FFIs and Reporting Model 2 FFIs
Foreign Financial Institutions (FFIs) have become a crucial part of the global financial system. However, due to the increased risk of tax evasion and money laundering, governments around the world have implemented a range of measures to ensure that FFIs are compliant with their tax laws. One such measure is the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 by the United States (US) government.
FATCA requires FFIs to disclose information about their US account holders to the Internal Revenue Service (IRS) of the US. To comply with FATCA, FFIs must enter into an FFI agreement with the IRS, which outlines their obligations under the law. There are two types of FFI agreements: one for participating FFIs and one for reporting Model 2 FFIs.
Participating FFIs
Participating FFIs are FFIs that have agreed to comply with FATCA by providing information about their US account holders to the IRS. To become a participating FFI, an FFI must enter into an FFI agreement with the IRS and meet the following requirements:
1. Register with the IRS and obtain a Global Intermediary Identification Number (GIIN).
2. Identify US accounts by following due diligence procedures, including verifying the identity of account holders and reviewing account activity.
3. Report certain information about US accounts to the IRS, such as the account balance, interest earned, and dividends paid.
4. Withhold a 30% tax on certain payments made to non-participating FFIs and account holders who refuse to provide the required information.
Reporting Model 2 FFIs
Reporting Model 2 FFIs are FFIs that are located in a country that does not have an intergovernmental agreement (IGA) with the US. Under FATCA, FFIs located in countries with IGAs must comply with their local government`s reporting requirements instead of the IRS`s reporting requirements. However, those located in countries without IGAs must enter into an FFI agreement with the IRS and comply with the IRS`s reporting requirements.
To become a reporting Model 2 FFI, an FFI must enter into an FFI agreement with the IRS and meet the following requirements:
1. Register with the IRS and obtain a GIIN.
2. Identify US accounts by following due diligence procedures, including verifying the identity of account holders and reviewing account activity.
3. Report certain information about US accounts to the local government that has an IGA with the US.
4. Withhold a 30% tax on certain payments made to non-participating FFIs and account holders who refuse to provide the required information.
Conclusion
FFIs must comply with FATCA by entering into an FFI agreement with the IRS and disclosing information about their US account holders. There are two types of FFI agreements: one for participating FFIs and one for reporting Model 2 FFIs. Participating FFIs must report certain information about US accounts to the IRS, while reporting Model 2 FFIs must report the information to their local government. Both types of FFIs must meet due diligence requirements and withhold a 30% tax on certain payments made to non-compliant FFIs and account holders. As a result, FFIs must carefully evaluate their obligations under FATCA and ensure that they meet all the requirements outlined in their FFI agreement with the IRS.
