FATCA FAQs

FATCA's objective is the prevention of tax evasion by identifying US persons* who invest directly in offshore accounts, or indirectly through the ownership of foreign passive income generating entities.

FATCA will require foreign financial institutions (FFIs)* or local tax authorities to provide information to the US Internal Revenue Service (IRS) on accounts held by US persons*. In addition, passive non-financial foreign entities (NFFEs)* will be required to provide information on their substantial US* owners to their FFIs where the passive NFFE holds its accounts.

To enforce compliance, a 30% withholding tax will be imposed on certain payments should the FFI and its underlying account holders, not comply with the FATCA legislation.

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

The term 'United States citizen' or 'US citizen' means:

·         An individual born in the US; or

·         An individual whose parent or parents is/are a US citizen(s); or

·         An individual of whom either one or both parents were born in the US; or

·         A former alien who has been naturalised as a US citizen; or

·         An individual born in Puerto Rico; or

·         An individual born in Guam; or

·         An individual born in the US Virgin Islands.

FATCA's objective is the prevention of tax evasion by identifying US persons* who invest directly in offshore accounts, or indirectly through the ownership of foreign passive income* generating entities.

FATCA will require foreign financial institutions (FFIs)* or local tax authorities to provide information to the US Internal Revenue Service (IRS)* on accounts held by US persons*. In addition, passive non-financial foreign entities (NFFEs)* will be required to provide information on their substantial US* owners to their FFIs where the passive NFFE holds its accounts.

To enforce compliance, a 30% withholding tax will be imposed on certain payments should the FFI and its underlying account holders, not comply with the FATCA legislation.

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

On a regular basis, banks and other financial institutions* will be required to report information on financial accounts held directly or indirectly by US persons*. Nedbank is required to be fully FATCA* compliant in all countries in which the Bank operates.

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

Every client is affected by FATCA* and must provide a Nedbank FATCA and CRS Self-certification form.

FATCA will only result in the reporting of individual and entity* clients who meet the definition of a US person* for US* tax purposes. In addition, a non-US entity* with one or more controlling persons* that meet the definition of a US person* will also be reported to the US* Internal Revenue Service (IRS).

The term 'US person' includes, but is not limited to, the following:

·         A citizen of the US*, including an individual born in the US*, but resident in another country (who has not given up his/her US citizenship*).

·         A person residing in the US*, including US Green Cardholders.

·         Certain persons who spend a significant number of days in the US each year.

·         US corporations, US partnerships, US estates and US trusts.

For more information visit the IRS website www.irs.gov or contact your professional tax advisor.

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

FATCA legislation became effective on 1 March 2010.

An intergovernmental agreement* (IGA) provides for a partnership agreement between the US* and a FATCA partnership jurisdiction, such as South Africa, as well as other countries such as France, Germany, the United Kingdom, India, and Spain.

An IGA enables countries to build FATCA compliance into their legal framework so that they can implement FATCA. IGAs also enable foreign financial institutions* (FFIs) in the designated jurisdictions to comply with FATCA, especially where there are privacy laws. There are currently two types of IGAs, Model 1 and Model 2*.

A Model 1 agreement allows FFIs in a country to report to their local tax authority (South African Revenue Service) who will then provide the information to the US Internal Revenue Service (IRS)* through the automatic exchange of the information. Each country's tax authority has a separate Model I agreement with the IRS, which includes country-specific provisions in addition to simplified due diligence and withholding requirements.

Under a Model 2 agreement, the FFI would report information directly to the IRS. South Africa has signed a Model 1 agreement with the IRS.

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

Certain categories of foreign financial institutions* (FFIs) and other entities may be exempt from the FATCA* legislation.

Those FFIs that are exempt from the FATCA legislation do not have to register with the US* Internal Revenue Service (IRS)* and nor do they need to obtain a Global Intermediate Identification Number* (GIIN). These exempted FFIs will also not be required to do any reporting.

However, although exempted from registration and reporting, they may still be required to complete the relevant IRS documentation depending on the circumstances and the type of FFI they are.

The following other types of entities may also be exempt from FATCA legislation:

·         Most government entities.

·         Most non-profit organisations exempt from taxation.

·         Certain small, local financial institutions.

·         Certain retirement funds.

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

When onboarding as a Nedbank client, all products  will be impacted by FATCA*.

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

To comply with the intergovernmental agreement* (IGA), Nedbank, along with all registered financial institutions, must identify and classify their account holders*, and report any affected accounts directly or indirectly owned by US persons* as well as passive non-financial foreign entities* (passive NFFEs) with controlling US persons*. Nedbank will also need to report on all payments made to non-participating foreign financial institutions*  (non-participating FFIs), as well as non-compliant account holders*.

For financial institutions in countries that have signed an IGA to comply with FATCA, such as Nedbank, the following steps will have to be taken:

·         Conduct a review of new and existing clients to identify those that are reportable* under FATCA. Entity clients will need to be classified according to the FATCA legislation (for example, as US persons*, FFIs* or NFFEs*).

·         Report information to the South Africa Revenue Service (SARS)* on all accounts held directly or indirectly by US persons*.

·         Report information about clients who do not provide the required documentation to Nedbank where that information may indicate that the client has some US 'indicia' (indicators).

·         In certain circumstances deduct and withhold a 30% tax on pass-through payments paid to account holders* who:

o  do not supply the required information (non-compliant account holders*); or

o  make payments to a non-participating FFIs*.

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

In general, for a country that has not signed an intergovernmental agreement* with the US*, a withholding agent* is required to withhold 30% on a withholdable payment made to a foreign financial institution* (FFI) or to a non-financial foreign entity* (NFFE), unless the FFI or NFFE meets certain requirements. Withholdable payments under FATCA are payments of interest, dividends, rents, and certain other specified items of income from U.S. sources.

In addition, an FFI* must withhold 30% on any pass-through payment it makes to a non-compliant account holder, as well as on payments it makes to another FFI, unless that FFI meets certain requirements. An example of a pass-through payment is where a dividend is paid by a US company to the account holder via a FFI.

Even though the Nedbank Africa Region (NAR) subsidiaries have not signed an IGA with the US, the subsidiaries are part of the Nedbank Group and therefore they become, what is called, “participating foreign financial institutions* (participating FFIs)”.  

The NAR subsidiaries must provide all the relevant data required to comply with the FATCA legislation because they form part of the “expanded affiliated group”* called Nedbank Group.

Furthermore, they are not currently required to withhold on any payments of a US source to account holders, provided they supply the necessary information regarding the account holder to the upstream withholding agent.

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

A non-compliant account holder* refers to any account holder who:

·         Fails to comply with Nedbank’s request for a Nedbank FATCA and CRS Self-certification form to determine if the account holder is a US person*.

·         Fails to provide Nedbank with any additional information and/or documentation that may be required based on the Nedbank FATCA and CRS Self-certification form such as the Tax Identification Number* (TIN), the Global Intermediatory Identification Number* (GIIN), and any other IRS form as may be required.

·         Fails to comply with Nedbank’s request for a Nedbank FATCA and CRS Individual and Controlling Person Self-certification form for each US controlling person* or owner of a US-owned entity, or a passive non-financial foreign entity* (passive NFFE).

·         Fails to provide a waiver of any foreign law that would prevent a foreign financial institution (FFI) from reporting the information required under FATCA.

Non-compliant account holders* will be reported as part of the FATCA reporting to the South Africa Revenue Service* (SARS).

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

FATCA* generally applies to two defined payment types, namely:

·       Withholdable payments.

·       Pass-through payments.

Withholdable payments under FATCA are payments of interest, dividends, rents, and certain other specified items of income from US sources.

Pass-through payments under FATCA are certain payments that would originate from a debtor payment, which passes through a foreign financial institution* (FFI) to a non-compliant account holder* at such FFI that are “attributable to” withholdable payments that would be subject to withholding under FATCA.

An example of a pass-through payment is where a dividend is paid by a US company to the account holder* via a FFI.

In addition, an FFI must withhold 30% on any pass-through payment it makes to a non-compliant account holder, as well as on payments it makes to another FFI, unless that FFI meets certain requirements.

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

A withholdable payment is a payment of:

·         A US* source of income that is fixed or determinable, such as dividends or interest, and which is annual or periodical income; or

·         Deposit interest paid by foreign branches of US banks.

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

The following links* provide access to the IRS W-forms*:

·         For W-8BEN form - https://www.irs.gov/pub/irs-pdf/fw8ben.pdf

·         For W-8BEN-E form - https://www.irs.gov/pub/irs-pdf/fw8bene.pdf

·         For W-8ECI form - https://www.irs.gov/pub/irs-pdf/fw8eci.pdf

·         For W-9 forms - https://www.irs.gov/pub/irs-pdf/fw9.pdf

* If you do not want to click on a link, please type the address in your browser.

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

A former United States* (US) citizen must provide a Certificate of Loss of Nationality (CLN) to prove they are no longer a US person or select a reason as to why they do not have a CLN. This is a specific requirement under the FATCA legislation and is a provision that has been adopted into the FATCA intergovernmental agreements.

Renouncing US citizenship is a complete renunciation of all the rights and privileges of US citizenship. It is also an irrevocable action and cannot be cancelled or appealed under most circumstances.

The Certificate of Loss of Nationality of the United States (CLN) is form DS-4083 of the Bureau of Consular Affairs of the United States Department of State. This form must be completed by a consular official of the United States documenting relinquishment of United States nationality.

This process may take several months to complete and is a costly process.

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