British financial firms cannot rest easy for another year just because the US government has placed international FATCA tax laws on the back burner until January 2014.
Rolling out Foreign Account Compliance Tax Act (FATCA) rules in Britain will still carry on as planned, according to global tax firm BDO Financial Services.
The tax regime was due to start on January 1, 2013 – but is now delayed until January 1, 2014.
The aim of the international law is to enforce US taxpayers with earnings and assets in other countries to declare their financial affairs to the Internal Revenue Service (IRS).
Paul Crean, the firm’s tax director, explained implementing the act was stalled to let other countries catch up with the intergovernmental agreement between the US and UK.
Final FATCA rules
But he fears red tape will increase for IFAs as they will have to collect more information about their clients and their finances to pass to product providers and HM Revenue & Customs.
Effectively, the delay has not changed the date when UK financial institutions have to report on their US taxpayer clients – it remains January 1, 2017.
“We are still awaiting the final regulations, but the main reason for changing the start dates is to align it with the implementation of the intergovernmental agreements between the UK and US. This is not altogether surprising, and it does not change the UK’s plans.
“The positive spin is that the US is aligning implementation dates, but the reality may be that the IRS is making a virtue out of a necessity – it may in fact need more time.”
Final FATCA rules are expected to be published by the end of 2012.
Some savings schemes, like ISAs, Junior ISAs are exempt from FATCA, but US assets held within larger portfolios and SiPPs may be subject to a 30% withholding tax if investors cannot prove they are not US citizens.
Another complication for IFAs and multinational financial firms headquartered in the UK is the intergovernmental agreement between the USA and Britain does not cover subsidiaries of companies based in territories not covered by the British agreement.
Some of these territories are actively pursuing signing their own intergovernmental agreements with the US – notably Jersey, Guernsey and the Isle of Man.
In these cases, undeclared assets may be subject to the withholding tax or separate reporting of financial details to the IRS.
iExpats.com have covered the basics of FATCA and have other articles which are related