Entity clients FAQs

For persons other than individuals a US person* includes, amongst others, a company, corporation, trust, or association incorporated/organised in the US* or governed under the laws of the US.

*For any defined terms please see the Table of terms and definitions. 

All new entity* clients are required, as part of the account opening procedures, to complete a Nedbank FATCA and CRS Entity Self-certification form.

Existing entities may be asked to provide a Nedbank FATCA and CRS Entity Self-certification form if a client’s account information has a change in circumstances or contains certain indicia (indicators).

For entity clients the indicia (indicators) usually includes:

• Place of incorporation outside of South Africa. 
• Place of effective management* outside of South Africa. 
• Current physical address outside of South Africa. 
• Current postal address outside of South Africa. 
• Indication that the controlling persons* maybe tax resident in the US* or in a jurisdiction outside of South Africa, in relation to certain entity types for example: 
  • Passive non-financial [foreign] entities* (passive NFEs). 
  • Trustee documented trusts. 
  • Investment entities* that are resident in a non-participating jurisdiction* and are managed by* another financial institution in a participating jurisdiction. 

Having these indicia (indicators) does not mean that the entity is either FATCA or CRS reportable, only that the client needs closer scrutiny, so Nedbank may request additional information.

*For any defined terms please see the Table of terms and definitions.

If your entity* is a financial institution* with a bank account at Nedbank, you will need to identify the entity’s financial institution classification type and provide a Global Intermediate Identification number* (GIIN), or a reason why you cannot provide a GIIN.

If the entity has US controlling persons and the entity classification type is one of the following:

• Passive non-financial entities* (passive NFEs).
• Trustee documented trusts*.
• Investment entities* that are resident in a non-participating jurisdiction and are managed by* another financial institution in a participating jurisdiction. 

then the entity will be FATCA impacted.

*For any defined terms please see the Table of terms and definitions.

The classification of an entity* under the Foreign Account Tax Compliance Act* (FATCA) and the Common Reporting Standard* (CRS) is very important because it will determine whether information relating to the entity’s controlling person(s) needs to be collected and disclosed to the relevant tax authorities.

An example of this is if the entity has either US controlling persons*, and/or controlling persons that have tax obligations*, tax liabilities* or tax residencies* outside of South Africa, AND the entity classification type is one of the following:

• Passive non-financial [foreign] entities* (passive NFEs )
• Trustee documented trusts* or
• Investment entities* that are resident in a non-participating jurisdiction* and are managed by* another financial institution in a participating jurisdiction

then the entity will be FATCA and/or CRS impacted.

*For any defined terms please see the Table of terms and definitions.

Where possible, Nedbank will endeavour to provide guidance on your FATCA* and CRS* entity* classification type based on the entity’s legal type, however, for more detailed advice you would need to seek tax advice from your local tax authority or your tax practitioner.

*For any defined terms please see the Table of terms and definitions.

A controlling person(s)* is/are the natural person(s) who exercise(s) control over an entity*. Where the entity is treated as a passive non-financial [foreign] entity* (passive NFE), a financial institution* must determine whether or not the controlling person(s)* is/are a reportable person(s)*.

All beneficial owners are controlling persons, but not all controlling persons are beneficial owners, because the Financial Intelligence Centre Amendment Act (FICA)* of South Africa does not regard a trust, or partnership, or association as a legal person.

A controlling ownership interest depends on the ownership structure of the company. It may be based on a threshold, e.g., any person owning more than 25% of the company, or on who exercises ultimate effective control over the entity.

Under FATCA*, in the case of a trust the controlling person(s) may be the settlor(s), trustee(s), protector(s) (if any), beneficiary/beneficiaries or class(es) of beneficiaries, or any other natural person(s) exercising ultimate effective control over the trust (including through a chain of control or ownership). Under the CRS the settlor(s), trustee(s), protector(s) (if any), and the beneficiary/beneficiaries or class(es) of beneficiaries is/are always treated as a controlling person(s) of a trust, regardless of whether or not he/she/they exercise(s) control over the activities of the trust.

Where the settlor(s) of a trust is/are an entity/entities, financial institutions must also identify the controlling person(s) of the settlor(s) and, when required, report such controlling person(s) as a controlling person(s) of the trust. In the case of a legal arrangement other than a trust, such term means a person(s) in an equivalent or similar position(s).

In the case of a partnership, information must be obtained for the following controlling persons:

·     Every partner, including every member of a partnership en commandite, being a partnership whose partners’ names are not disclosed.

·     The person who exercises executive control over the partnership.

·     Each natural person who purports to be authorised to establish a business relationship or who can enter into a transaction with the accountable institution on behalf of the partnership.

The following are deemed to be controlling persons:

1      For a company

·       Each natural person who directly owns 25% or more of the company's shares.

·       Where the company's shares are owned directly by an entity each natural person who is the ultimate beneficial holder and indirectly owns 25% or more of the company's shares.

·       Each natural person who exercises control (the ability to influence materially the outcome of a vote at a general meeting or appointor veto the appointment of the directors of the entity) through other means such as personal connections or contractual relationships.

If, despite reasonable effort, the information required in the above bullet points cannot be obtained, then each natural person who holds a senior management position and exercises executive control over the daily or regular affairs of the company, filling the position of chief executive officer, chairman of the board, chief financial officer, chief operating officer or

1      For a trust

·       Settlor

·       Founder

·       Donor

·       Trustee

·       Beneficiary/Beneficiaries

2      For a partnership of entities

·       Each natural person who is the ultimate beneficial holder of 25% or more of the partnership interest.

·       Each natural person who exercises control through other means such as personal connections or contractual relationships.

·       Each natural person who controls the business decisions of the partnership, in terms of the partnership agreement.

3      For a partnership of natural persons

·       All partners of the partnership.

4      For a social club, stokvel or and associations

·       All natural persons authorised to manage the affairs of the social club, stokvel or association in terms of the constitution.

5      For a cooperative

·       The managing/executive director or person(s) in a similar capacity.

6      For a close corporation

·       All members of the close corporation.

Note: The term “controlling person” is relevant when applying due diligence and reporting procedures only to passive non-financial [foreign] entities.

*For any defined terms please see the Table of terms and definitions.

'Control'* over an entity* is generally exercised by the natural person(s) who ultimately has/have a controlling ownership interest in the entity.

A 'controlling ownership interest' depends on the ownership structure of the legal person and is usually identified based on a threshold by applying a risk-based approach [e.g., any person(s) owning more than 25%}.

Where no natural person(s) exercise(s) control through ownership interests, the controlling person(s)* of the entity will be the natural person(s) who exercise(s) control over the entity through other means such as a majority of a voting right or the right to appoint or remove the majority of the board of the directors.

Where no natural person(s) is/are identified as exercising control over the entity through ownership interests, the reportable person will be deemed to be the natural person holding the position of senior managing official.

*For any defined terms please see the Table of terms and definitions.

The definition of a 'foreign financial institution'* (FFI) is very broad and is expected to encompass a number of entities*, generally not always considered to be financial institutions. The term 'foreign financial institution' means:

·         A custodial institution*, for example a bank/broker holding securities for a client.

·         A depository institution*, for example a bank or mutual bank.

·         A specified insurance company, for example a long-term issuer that issues cash value retirement, annuity, or endowment policies.

·         An investment entity*, for example an asset manager, a collective investment scheme or hedge fund.

‘Investment entity'* includes two types of entities:

1. An entity* that primarily conducts itself as a business, performing one or more of the following activities or operations for or on behalf of a client:

·     trading in money market instruments for example cheques, bills, certificates of deposit and derivatives, foreign exchange, exchange, interest rate and index instruments, transferable securities, or commodity futures;

·     individual and collective portfolio management; or

·     investing, administering, or managing financial assets or money on behalf of other persons.

These activities or operations do not include rendering non-binding investment advice to a client.

2. The second type of investment entity* (an investment entity managed by another financial institution) is any entity whose gross income is primarily attributable to investing, reinvesting, or trading in financial assets, and where the entity is managed by* another entity that is a depository institution, a custodial institution, a specified insurance company or the type of investment entity described in (1) above.

Generally non-US entities such as banks, broker/dealers, insurance companies, hedge funds, securitisation vehicles and private equity funds will be considered FFIs.

*For any defined terms please see the Table of terms and definitions.

An entity* will be regarded to be “managed by an entity” if the entity that manages that other entity, has discretionary authority to manage its assets.

An entity is 'managed by'* another entity if the managing entity performs, either directly or through another service provider on behalf of the managed entity, any of the activities or operations described in the definition of 'investment entity'* under the first type of entity*.

An entity manages another entity only if it has discretionary authority to manage the other entity's assets (either in whole or part).

Where this managed entity is located in a non-participating jurisdiction* and managed by* another financial institution, it is treated as passive non-financial [foreign] entity (passive NFE)*.

*For any defined terms please see the Table of terms and definitions.

A foreign financial institution* (FFI) that enters into an FFI agreement* with the US* Internal Revenue Service* (IRS) is referred to as a 'participating foreign financial institution'*. An FFI that does not enter into an agreement with the IRS is referred to as a 'non-participating foreign financial institution’* (non-participating FFI) and is subject to withholding under FATCA*.

A non-participating FFI and its underlying account holders* will therefore have a 30% withholding tax imposed on certain payments.

*For any defined terms please see the Table of terms and definitions.

The term 'TIN' means taxpayer identification number*. A TIN is a unique combination of letters or numbers assigned by a jurisdiction to an individual or an entity to identify the individual or entity for the purposes of administering the tax laws of such jurisdiction.

In some jurisdictions TINs are not issued at all. However, in other cases, instead of a TIN being issued, a functional equivalent can be used, such as a high-integrity number with an equivalent level of identification. Examples of that type of number include, for entities, a business/company registration code/number.

Please note:

·       For a US entity* (US person*), it’s TIN is referred to as the Employer Identification Number.

* For any defined terms please see the Table of terms and definitions.

The Global Intermediary Identification Number* (GIIN) is a number issued by the US Internal Revenue Service* (IRS) via the IRS registration portal.

All participating foreign financial institutions* need to register with the IRS to obtain a GIIN.

It applies to financial institutions that have adopted FATCA either through an intergovernmental agreement* or as a choice, being a Model 2 foreign financial institution*.

Certain deemed-compliant or non-reporting financial institutions must also obtain a GIIN.

The GIIN is a unique reference number that has a specific format and is issued to identify each financial institution. Each part of the number has a particular meaning. For example, it tells you whether the financial institution is part of a bigger group or whether the financial institution is a sponsoring entity. It also identifies the financial institution jurisdiction of residence in which it maintains a branch that is not treated as a 'limited' branch.

*For any defined terms please see the Table of terms and definitions.

Under the Foreign Account Tax Compliance Act* (FATCA) a [foreign] entity* that is not a financial institution* is a non-financial [foreign] entity* (NFFE), and under the Common Reporting Standard* (CRS) an entity that is not a financial institution* is a non-financial entity (NFE).

There are two types of NFEs:

·     Active non-financial [foreign] entities* (active NFEs) and

·     Passive non-financial [foreign] entities* (passive NFEs)

An NFE that conducts an active trade (active NFE) and earns income mainly from business activities is an active NFE.

While an NFE that earns income only from investment income, such as dividends, interest, annuities, rental income, or royalties is a passive [foreign] NFE.

If your entity is classified as a passive [foreign] NFE, you have to certify whether or not any of your controlling persons are either US persons* and/or have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

NFEs include, but are not limited to, the following:

·         Listed or privately held operating or trading businesses.

·         Professional service firms.

·         Certain entities with passive income (i.e., not an operating/trading business).

·         Charitable organisations.

*For any defined terms please see the Table of terms and definitions.

An active non-financial [foreign] entity* (NFFE) is a category of NFE that only needs to certify that it is an NFE. It doesn't need to report on any substantial US* owners, or US persons* with foreign tax obligations* they may have, and there will not be any withholding on such an entity.

Any non-financial [foreign] entity can be an active non-financial [foreign] entity such as:

·         Active non-financial entities* by reason of income and assets;

·         Publicly traded non-financial entities;

·         Governmental entities, international organisations, central banks, or their wholly owned entities;

·         Holding non-financial entities that are members of a non-financial group;

·         Start-up non-financial entities;

·         Non-financial entities that are liquidating or emerging from bankruptcy;

·         Treasury centres that are members of a non-financial group; or

·         Non-profit non-financial entities.

An entity will be classified as an active non-financial entity if it meets any of the following criteria:

·         Less than 50% of the non-financial entity's gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the non-financial entity during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income.

·         The stock of the non-financial entity is regularly traded on an established securities market or the non-financial entity is a related entity of an entity of which the stock is regularly traded on an established securities market.

·         The non-financial entity is a governmental entity, an international organisation, a central bank, or an entity that is wholly owned by one or more of the foregoing.

·         Substantially all of the activities of the non-financial entity consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution, except that an entity does not qualify for this status if the entity functions as (or holds itself out to be) an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.

·         The non-financial entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the non-financial entity does not qualify for this exception after a date that is 24 months after a date of the initial organisation of the non-financial entity.

·         The non-financial entity was not a financial institution in the past five years and is in the process of liquidating its assets or is reorganising with the intent to continue or recommence operations in a business other than that of a financial institution.

·         The non-financial entity primarily engages in financing and hedging transactions with, or for, related entities that are not financial institutions, and does not provide financing or hedging services to any entity that is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution.

·         The non-financial entity meets all the following requirements:

‒       it is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;

‒       it is exempt from income tax in its jurisdiction of residence;

‒       it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;

‒       the applicable laws of the non-financial entity jurisdiction of residence or the non-financial entity's formation documents do not permit any income or assets of the non-financial entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the non-financial entity's charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of the property the non-financial entity has purchased; and

‒       the applicable laws of the non-financial entity's jurisdiction of residence or the non-financial entity's formation documents require that, on the non-financial entity's liquidation or dissolution, all its assets be distributed to a governmental entity or other non-profit organisation, or escheat to the government of the non-financial entity's jurisdiction of residence or any political subdivision thereof.

Examples of active non-financial [foreign] entities are manufacturing companies, law firms, mining companies, estate agents, architect firms and farms.

A passive non-financial [foreign] entity* (passive NFE) is a non-financial entity of which 50% of its income is passive, and more than 50% of its assets for the last financial year are in the form of passive investments.

(Passive income* is derived from investing in assets rather than from activities carried on in the normal course of a trade or business.)

A passive NFE* is:

·         Any non-financial entity that is not an active non-financial entity.

·         An investment entity* that is resident in a non-participating jurisdiction* and is managed by* a financial institution in a participating jurisdiction*.

Examples of passive non-financial entities are family trusts, investment clubs, non-profit entities that are registered not for gain, and entities that own a farm and its only income is rental income, not farming income.

However, if this passive NFE is an entity and is part of a group that is listed and frequently traded on a regulated stock exchange, then it will default to an active non-financial entity.

*For any defined terms please see the Table of terms and definitions.

As the term suggests, passive income is derived from investing in assets rather than from activities carried on in the normal course of a trade or business.

Passive income includes the portion of income that consists of:

·         Dividends.

·         Interest.

·         Income equivalent to interest.

·         Rental income and royalties, other than rental income and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the non-financial entity (NFE)*.

·         Annuities.

·         The excess of gains over losses from the sale or exchange of property that gives rise to passive income described previously.

·         The excess of gains over losses from transactions (including futures, forwards, options, and similar transactions) in any financial assets.

·         The excess of foreign currency gains over foreign currency losses.

·         Net income from swaps.

·         Amounts received under Cash Value Insurance Contracts.

The context in which the income described above is received is important. For example, where the NFE is a dealer in financial assets any such income as described above may be income from a trading activity. Where the income described above is received by a NFE and is accounted for, or is taxable, as income from trading activities, it should be included in gross income and not as passive income.

Passive income does not include:

·       Any commodity hedging transaction;

·       Active business gains or losses from the sale of commodities;

·       The excess of foreign currency gains over foreign currency losses;

·       Net income from notional principal contracts;

·       Amounts received under a cash value insurance contract; or

·       Amounts received by insurance companies in connection with its reserves for insurance and annuity contracts*.

*For any defined terms please see the Table of terms and definitions.

FATCA* and CRS* do not replace the existing US* or other countries’ tax regimes. It may, however, add additional requirements and complexity to the existing tax rules you may already follow. Should you need further advice on whether or not you have foreign tax obligations*, or on your FATCA and CRS entity classification type, you should contact a professional tax advisor.

*For any defined terms please see the Table of terms and definitions.

FATCA* and CRS* compliance is an ongoing process.

For new account holders* FATCA and CRS information must be obtained when Nedbank opens your entity* account; along with a signed certification as to whether or not your entity is a US* entity (US person*) and/or has tax obligations*, tax liabilities* or tax residencies* outside of South Africa (foreign tax obligations).

If you are an existing client who became a client before the FATCA or CRS effective dates, your certification as to whether or not your entity has foreign tax obligations* will be requested, in the form of the Nedbank FATCA and CRS Entity Self-certification form.

If your entity* account information changes, or if US indicia (indicators) are identified by Nedbank, we are required to validate and possibly recertify your entity's details to ensure compliance in terms of the FATCA and CRS legislation.

It is important to remember that a change in circumstance refers to any change that results in the addition or alteration of client information or changes to controlling person(s)* information linked to that client.

Examples of changes in circumstance include the following:

·     The entity’s country of incorporation changes to another country.

·     The entity’s place of effective management* changes to another country.

·     The entity’s classification changed from an active non-financial entity (“NFE”) to a passive NFE* or vice versa.

·     The entity changed from being a non-financial entity to a financial institution or vice versa.

·     The entity’s reportable controlling person(s)* change either through:

o  adding more reportable controlling person(s);

o  substituting reportable controlling person(s); or

o  any other changes relating to controlling person(s)* such as a change in tax obligations*, tax liabilities* or tax residencies*; or physical address of an existing controlling person(s).

Where your entity is required to provide Nedbank with one of the US Internal Revenue Service (IRS) W-forms*, it is important to note that the IRS W-8BEN, W-8BEN-E and W-8ECI forms (required under FATCA) are valid for three years.  However, if there is a change in circumstance, then these forms would become automatically invalid and would need to be renewed. Nedbank will notify you when this is needed.

However, the W-9 form remains valid unless there is a change in circumstances.

*For any defined terms please see the Table of terms and definitions.

Nedbank is required to report CRS* information to SARS* in respect of all accounts held by:

·     Entities* who are resident for tax purposes in a country outside of South Africa due to their country of incorporation and /or place of effective management*; or

·     Certain entities with controlling persons* who have tax obligations*, tax liabilities* or tax residencies* outside of South Africa. These entity types include

o        passive non-financial [foreign] entities* (passive NFEs),

o        trustee documented trusts, and

o        investment entities* that are resident in a non-participating jurisdiction* and are managed by another financial institution* in a participating jurisdiction.

In addition, Nedbank will also need to report account information relating to those entities that do not provide Nedbank with the required Nedbank FACTA and CRS Entity Self-certification form and any IRS W-form* as the case may be.

*For any defined terms please see the Table of terms and definitions.

An entity* will be a US* reportable account* if:

·         The entity itself was incorporated or organised in the US;

·         The entity is a passive non-financial [foreign] entity (passive NFE) with one or more controlling US persons*;

·         The entity is a non-participating Foreign Financial Institution*; or

·         The entity is non-compliant with US indicia (indicators).

*For any defined terms please see the Table of terms and definitions.

Nedbank is required to report all mandatory information as set out in the SARS* business requirement specification reporting schema in order to comply with the FATCA* and CRS* legislation.

All accounts held by US* entities* (US persons*) and that have tax obligations*, tax liabilities* or tax residencies* outside of South Africa will be reported to SARS.

The information is entity-specific and will relate to the accounts held by entities that are defined as US Persons*, or entities that have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

Furthermore, certain entity types that are not US persons* or that do not have tax obligations, tax liabilities or tax residencies outside of South Africa, may also be reportable where the entity has controlling persons* that are either defined as US Persons* and/or have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

These entity types that could be reportable due to their controlling persons are:

·     Passive non-financial [foreign] entities* (passive NFEs).

·     Trustee documented trusts.

·     Investment entities* that are resident in a non-participating jurisdiction and are managed by another financial institution in a participating jurisdiction*.

The following information will be reported:

·     The name of the entity*.

·     The address of the entity*.

·     The entity’s registration number, if applicable.

·     The place of incorporation outside of South Africa.

·     The place of effective management* outside of South Africa.

·     The entity’s account number.

·     Each country of tax residence where the entity has tax obligations*, tax liabilities* or tax residencies* in.

·     Every taxpayer identification number* (TIN) that the entity has provided for each country of tax residence, or the reason why the entity does not have a TIN for each country of residence.

·     For selected entity classification types, we would also need to report additional information on the controlling person(s)* that are defined as either a US Person* and/or have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

·     The aggregated year-end balance for all the entity’s accounts.

·     The gross proceeds on any disposal, income flows, gross withdrawals, or payments from the entity’s stockbroking and/or unit trust accounts.

·     All payments made to, and from, the entity’s account, where the entity has been classified as a non-participating foreign financial institution* under FATCA.

*For any defined terms please see the Table of terms and definitions.

Yes, every account holder* must self-certify by confirming in writing, through the completion, dating and signing of a Nedbank FATCA and CRS Entity Self-certification form, that the entity, as the account holder, is not a US* entity* (US Person*) and/or does not have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

The entity must also confirm that it does not have controlling person(s) that are US Persons* and/or that do not have tax obligations*, tax liabilities* or tax residencies* outside of South Africa.

*For any defined terms please see the Table of terms and definitions.

No, because a controlling person* in terms of South African law means each natural person who directly owns 25% or more of the company's shares. A shareholder that owns less than 10% is therefore not classified as a controlling person.

*For any defined terms please see the Table of terms and definitions.

A “stokvel” is described as members of a specific group which:

·         Is a formal or informal rotating credit scheme with entertainment, social and economic functions.

·         Fundamentally consists of members who have pledged mutual support to each other towards the attainment of specific objectives.

·         Establishes a continuous pool of capital by raising funds by means of subscriptions of members.

·         Grants credit to and on behalf of members.

·         Provides for members to share in profits and to nominate management; and

·         Relies on self-imposed regulation to protect the interest of its members.

Nedbank considers a stokvel as an entity*; and as such the account is regarded as an entity account. The authorised signatories, being the mandated individual members, of the “stokvel” account are each regarded as controlling persons because the stokvel is classified as a passive non-financial [foreign] entity* (passive NFE).

*For any defined terms please see the Table of terms and definitions.