Maitland Group

Neil Montgomery, Senior Manager – Corporate Services Compliance, addresses four common misconceptions around the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), as these regulations relate to South Africa.

Misconception 1: FATCA and CRS only impact large financial institutions, such as banks

Not true. The impacts of FATCA and CRS are pervasive and far reaching. Individuals in South Africa looking to open an account with a bank, investment platform or another financial institution have to disclose all the jurisdictions in which they are tax residents to these financial institutions. In a similar manner, entities that want to open a bank or investment account need to complete FATCA and CRS self-certification forms in which they confirm their classifications under FATCA and CRS and provide additional information depending on their particular classifications. The board of directors (or equivalent) of entities are responsible for the accuracy and completeness of the FATCA and CRS information provided and for compliance with these regulations in general. Fiduciaries should therefore familiarise themselves with these regulations and/or appoint third party service providers to assist them with FATCA and CRS compliance.

Misconception 2: Financial institutions (FIs) only have FATCA and CRS obligations if they maintain accounts for account holders that are tax resident outside of SA

Not so. All SA entities that have been classified as FIs under FATCA and CRS must perform due diligence procedures to identify reportable account holders. The nature and extent of the due diligence required varies depending on the value of the balance of the account, if the account is a new or pre-existing account and if the account is held by an individual or entity account holder. Even if none of the account holders are tax resident outside of SA, the FI is still required to file a nil return. Under FATCA, FIs are also required to register with the IRS to obtain a global intermediary identification number (GIIN).

Misconception 3: Tax practitioners managing SARS e-filing profiles for corporate clients will not have to be involved in the FATCA and CRS reporting process for Financial Institutions

Not so simple. In SA, FIs need to file a Foreign Tax Information (FTI) return with the South African Revenue Service (SARS) on or before 31 May of each year for the preceding reporting year ending on the last day of February. FIs with reportable account holders must submit the relevant data via HTTP or Connect Direct and submit a declaration, known as an FTI02 form, via e-filing to complete the process. Nil returns can be submitted via e-filing. In order to file an FTI return, the FTI functionality needs to be activated via the FI’s e-filing profile. Tax practitioners managing SARS e-filing profiles for FIs must therefore ensure that they are familiar with the FTI activation and submission process.

Misconception 4: FATCA and CRS only impact investment vehicles, such as funds etc., and not the entities managing these structures

Again, not quite correct. Although the extent of the FATCA and CRS obligations are generally more onerous at the investment vehicles / funds level, investment management entities usually also fall within the definition of FIs. Investment managers that are classified as FIs must comply with the due diligence and reporting requirements under FATCA and CRS. In certain circumstances an investment manager could qualify to be a non-reporting FI under FATCA, which means it will not have to comply with the US Internal Revenue Service (IRS) registration, due diligence and reporting obligations pursuant to FATCA. Investment managers classified as FIs under CRS that do not maintain any reportable account holders are still required to file a nil FTI return on an annual basis.

Contributed by:
Maitland

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