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Cayman Islands FATCA Registration Portal

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On March 20, 2015, the Cayman Islands FATCA Registration Portal was launched by the Department for International Tax Cooperation (which is a department within Cayman Islands Tax Information Authority).

Cayman Islands FATCA Background 

The Cayman Islands FATCA Registration Portal is part of the long process of Cayman Islands FATCA compliance. Cayman Islands FATCA IGA (Model 1) was signed with the United States on November 29, 2013. At the same time, Cayman Islands signed the amended Tax Information Exchange Agreement. Both of these developments led to the creation of the Portal as a way to automatically exchange information required by FATCA between Cayman Islands and the United States.

It is also important to point out that Cayman Islands FATCA compliance was not only driven by the US considerations, but also by the UK considerations. As an overseas territory of the United Kingdom, Cayman Islands had to come to an agreement with the United States that could not have been better the terms negotiated between the UK and Cayman Islands with respect to the exchanges of tax-related information.

Purchase of the Portal

The Portal plays a critical role in Cayman Islands FATCA compliance, because it allows Cayman’s financial institutions (including the investment funds based in Cayman islands) to report information required by FATCA to the Cayman Islands Tax Information Authority, which, as it is mandated by Model 1 FATCA agreement, will turn over the required information to the IRS.

Registration

As part of Cayman Islands FATCA compliance, the Cayman Islands Tax Information Authority warned the island’s financial institutions that they much must register via the Portal by April 30, 2015 and provide their names, FATCA classification, principal point of contact and other information.

Reporting Deadline by May 31, 2015

The deadline for reporting the 2014 (calendar year) information by the Cayman’s financial institutions must be done by May 31, 2015. The information that will have to be submitted through the Portal is the one usually required by FATCA, including:

1. US person’s name, address and tax identification number (and date of birth, where applicable);
2. US person’s account number or its equivalent;
3. Name and ID of the reporting financial institution; and
4. Year-End Balance of the account.

Interestingly enough, the UK FATCA requirement for Cayman Islands is much later – May 31, 2016.

Caymans Islands FATCA Compliance Is Not Unique

Cayman Islands FATCA compliance through a Portal is now a common theme throughout the world. In fact, it is expected that most of the Model 1 FATCA countries around the world have either complied with 2014 US FATCA requirements or will do so soon, and they are likely to be using a Portal of some kind.

For example, it is expected that the following jurisdictions will do their FATCA reporting through an information reporting system (deadlines in parenthesis): Ireland (June 30, 2015), Luxembourg (June 30, 2015), United Kingdom (May 31, 2015), Canada (May 2, 2015), and so on.

What Portal Means for US Persons with Undisclosed Cayman Islands Accounts

If you are a US person with undisclosed foreign accounts in Cayman Islands (any many other jurisdictions around the world), you are very likely to have very little time left before your account will be disclosed to the IRS. The penalties (especially FBAR and Form 8938 penalties) for failure to report foreign accounts can be draconian, including potential incarceration. Moreover, once the IRS learns about the existence of your account and initiates an invest, you may not be able to do a voluntary disclosure to reduce your penalties.

This means that US persons with undisclosed foreign accounts need to immediately contact an experienced international tax lawyer to explore their voluntary disclosure options in order to timely file their request for Preclearance.

Contact Sherayzen Law Office for Professional Help With Disclosing Your Foreign Accounts

Sherayzen Law Office, Ltd. is the experienced international tax firm that can help you with the voluntary disclosure of your foreign accounts. We have already successfully helped hundreds of US taxpayers around the world to conduct various types of voluntary disclosures (SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), Delinquent Information Returns, Delinquent FBAR Submission, and Noisy/Reasonable Cause disclosures), and We can help You!

Contact Us to Schedule Your Confidential Consultation!

FATCA Compliance Presents Challenges for Hedge Funds

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The Foreign Account Tax Compliance Act (FATCA) created a worldwide international tax compliance regime that has influenced more industries than simply foreign financial institutions. FATCA compliance presents a formidable challenge even to hedge funds.

FATCA Compliance Challenges for Hedge Funds

The challenges that FATCA compliance poses to hedge funds is best understood by analyzing what FATCA compliance requires of hedge funds – a multi-group coordination effort from various divisions within a business enterprise: business, operations, technology, finance and compliance.

The compliance department, most likely with the cooperation of the in-house counsel (and outside counsel who specializes in FATCA compliance, if in-house counsel lacks such knowledge) should lay out the FATCA compliance goals and make sure that the FATCA compliance process complies with these goals. The operations division should create the framework for the FATCA compliance process, including how this process should be controlled and managed for tax reporting and tax withholding purposes. The technology division needs to build the IT infrastructure to address the technological challenges of FATCA goals in a cost-effective way. The members of the business division (which incorporates the actual customer intake) should be thoroughly educated in the FATCA compliance process as well as the company’s specific IT solutions.

When this FATCA compliance process is applied to the hedge fund industry, one can clearly see the numerous challenges that the hedge funds face in the implementation of their FATCA compliance. The hedge funds need to register their funds for FATCA on the IRS portal, gather various investor data with respect to numerous (and often changing) customers, review and assess such data, and properly report customer data to the IRS.

Another challenge for hedge funds is the required tax withholding. Unlike previous attempts at international tax legislation, FATCA has very effective enforcement mechanisms which forces all US banks, brokers and financial institutions to essentially work for the IRS, including withholding taxes. In fact, the hedge funds that deal in US dollars are likely to be subject to the withholding tax requirement at an increasing rate in the near future.

However, the tax withholding challenge for hedge funds goes far beyond the more straightforward fact that it will need to withhold tax. Rather, the biggest headache for hedge funds is the identification of the beneficial owners and controlling persons of their clients. A lot of investors in hedge funds operate through unregulated legal vehicles or individual agents; this fact makes the FATCA data collection process a much more difficult challenge for hedge funds.

Finally, the variations in IGAs to implement FATCA present an additional challenge. While this problem is not specific to hedge funds, it is the one that they still have to manage.

Impact of FATCA Compliance By Hedge Funds On US Taxpayers

Despite these challenges, many hedge funds are successfully addressing FATCA compliance issues and are incorporating advanced software solutions to make their look-through process more efficient.

These successes of hedge funds in their FATCA compliance make it difficult for US persons investing in mutual funds through foreign entities to conceal their ownership of these entities. This means that one can expect an increase of the IRS discovery of such investors.

If these investors are not in full compliance with their US tax obligations – particularly with respect to FBAR, Form 8938, foreign business ownership reporting, foreign trust ownership and foreign income disclosure – they may be facing catastrophic US tax consequences, including draconian FBAR willful penalties as well as potential imprisonment.

Contact Sherayzen Law Office for Help With Undisclosed Foreign Assets and Income

If you have undisclosed foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. After reviewing the facts of your case and analyzing the available voluntary disclosure options, Mr. Sherayzen will conduct your voluntary disclosure process from the beginning through the end, including the preparation all of the required legal documents and tax forms.

Contact Us to Schedule Your Confidential Consultation Now!