What is FATCA & CRS?
FATCA is an acronym for the Foreign Account Tax Compliance Act, a new
set of US Tax Regulations brought in by the US govt. and enacted through the
Internal Revenue Service (IRS), which is similar to Income Tax Department in
FATCA stands for The Foreign Account Tax Compliance Act (FATCA).
In 2010, USA enacted a law known as FATCA with the objective
of tackling tax evasion through obtaining information in respect of offshore
financial accounts maintained by USA residents and citizens. FATCA requires
non-US Foreign Financial Institutions (FFIs) and non-US Non-Foreign Financial
Entities (NFFEs) to disclose their US account holders or become subject to a new
30% US withholding tax. The provisions of FATCA essentially provide for 30%
withholding tax on US source payments made to Foreign Financial Institutions
unless they enter into an agreement with the Internal Revenue Service (US IRS)
to provide information about accounts held with them by USA persons or entities
(firms/companies/trusts) controlled by USA persons. FATCA is mainly to combat
tax evasion by US persons with accounts held outside the US and who do not
declare their taxable income or gains for US tax purposes. The FATCA
Regulations have become effective from July 01, 2014.
Since domestic laws of sovereign countries (including India) may not permit
sharing of client confidential information by FIs directly with USA, USA has
entered into Inter-Governmental Agreement (IGA) with various countries. The IGA
between India and USA was signed on 9th July, 2015. It provides that the Indian
FIs will provide necessary information to the Indian tax authorities, which will
then be transmitted to USA periodically. Under the IGA, USA will also provide
substantial information about Indians having financial assets in USA.
FATCA applies to every Foreign Financial Institution and require FFIs to
implement procedures to identify account holders, perform due diligence and
retain documentary evidence of their account status. The FFIs must
identify US accounts and any non-FATCA compliant accounts, report details of
such accounts (effective from July 01, 2014) to the local tax authority and
apply withholding tax on these accounts from 2017.
CRS stands for Common Reporting Standard. To combat the problem of offshore
tax evasion and avoidance and stashing of unaccounted money abroad requiring
cooperation amongst tax authorities, the G20 and OECD countries working
together developed a Common Reporting Standard (CRS) on Automatic Exchange
of Information (AEOI). The CRS on AEOI was presented to G20 Leaders in
Brisbane on 16th November, 2014.
The CRS on AEOI requires the financial institutions of the “source” jurisdiction
to collectand report information to their tax authorities about account holders
“resident”in other countries, such information having to be transmitted
“automatically’ onyearly basis. The information to be exchanged relates not only
to individuals butalso to shell companies and trusts having beneficial ownership
or interest in the“resident” countries. Further, the reporting needs to be done
for a wide range offinancial products, by a wide variety of financial
institutions including banks,depository institutions, collective investment
vehicles and insurance companies.
India has joined Multilateral Competent Authority Agreement (MCAA) on Automatic
exchange of Financial Account Information on June 3, 2015. In terms of MCAA, all
countries which are signatory to the MCAA, are obliged to exchange wide range of
Financial information after collecting the same from Financial Institutional in
their country / jurisdiction.
Having signed these agreements, India is bound by the compliance required under
FATCA & CRS
What is the Purpose of FATCA?
The primary goal of FATCA is to gain information (reporting) about U.S.
persons. FATCA would help IRS to:
What is the impact of FATCA legislation?
FATCA is far reaching and can impact any U.S. person who is involved in
making or receiving payments that fall within the scope of FATCA. While
FATCA certainly affects U.S. withholding agents and U.S. multinational
companies, the greatest impact will likely be to “Foreign Financial
Institutions” (FFIs) which can be an ‘entity’ or a ‘fund’.
All financial institutions globally, including banks, investment funds,
distributors, custodians, investment managers, financial advisors, insurance
companies and other entities must consider whether they are subject to FATCA.
What are the withholding requirement under FATCA?
In general, 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. In addition, an FFI must withhold 30% on any passthru payment
it makes to a recalcitrant account holder, as well as to payments it makes
to another FFI unless that FFI meets certain requirements.
What is a US Indicia?
Identification of the Account Holder as a U.S. citizen or resident;
Unambiguous indication of a U.S. place of birth
Current U.S. mailing or residence address (including a U.S. post office box);
Current U.S. telephone number
Standing instructions to transfer funds to an account maintained in the United
Currently effective power of attorney or signatory authority granted to a person
with a U.S. address; or
7. An “in-care-of” or “hold mail” address that is the sole address the Reporting [FATCA Partner] Financial Institution has on file for the Account Holder.
Effect of Finding Indicia?
If none of the indicia are discovered, and the account is not identified as
held by a reportable person, then further action is not required until there
is a change in circumstances which results in one or more indicia being
associated with the account;
If any of the
indicia is discovered, or if there is a subsequent change in circumstances which
results in one or more indicia being associated with the account, then the
reporting financial institution shall treat the account as a reportable account
with respect to each country or territory outside India for which an indicium is
For on boarding, how do we identify US Investors?
US investors can be identified based basis above 7 US Indicia/parameters
What is a Foreign Financial Institution (FFI)?
An FFI is a foreign financial institution, which is any non-U.S.
What is an Exempt FFI?
Certain Foreign Financial Institutions may be exempt from FATCA. They include:
Indian entities can be classified into several categories that are affected
by different obligations and requirements. The first step to be undertaken
by an Indian entity or its representative is therefore to establish whether
the entity is a Financial Institution.
rule 114 F inserted in the Income-tax rules,1962 , financial institution” means
an entity which falls within any of the following categories
Specified Insurance Company
institution” means any entity that holds, as a substantial portion of its
business, financial assets for the account of others and where its income
attributable to the holding of financial assets and related financial services
equals or exceeds twenty per cent. of its gross income during the three
financial years preceding the year in which determination is made or the period
during which the entity has been in existence, whichever is less;
institution means any entity that accepts deposits in the ordinary course of a
banking or similar business
entity” means any entity,-
primarily conducts as a business one or more of the following activities or
operations for or on behalf of a customer, namely:-
in money market instruments (cheques, bills, certificates of deposit,
derivatives, etc.); foreign exchange; exchange, interest rate and index
instruments; transferable securities; or commodity futures trading; or
individual and collective portfolio management; or
otherwise investing, administering, or managing financial assets or
money on behalf of other persons; or
(B) the gross
income of which is primarily attributable to investing, reinvesting, or trading
in financial assets, if the entity is managed by another entity that is a
depository institution, a custodial institution, a specified insurance company,
or an investment entity mentioned in sub-clause (A) of this clause.
An entity is
treated as primarily conducting as a business one or more of the activities
described in sub-clause (A) of this clause, or an entity’s gross income is
primarily attributable to investing, reinvesting, or trading in financial assets
for purposes of sub-clause (B) of this clause, if the entity’s gross income
attributable to the relevant activities equals or exceeds fifty per cent. of the
gross income of the entity during the shorter ofthe three-year period ending on
31st March of the year preceding the year in which the determination is made or
the period during which the entity has been in existence.
Specified insurance company” means any entity that is an insurance company (or
the holding company of an insurance company) that issues, or is obligated to
make payments with respect to, a Cash Value Insurance Contract or an Annuity
What is Non-reporting Financial Institution (NFI)?
Governmental entity, International Organisation or Central Bank
Treaty Qualified Retirement Fund; a Broad Participation Retirement Fund; a
Narrow Participation Retirement Fund; or a Pension Fund of a Governmental
entity, International Organization or Central Bank
a non-public fund of the armed forces, Employees’ State Insurance Fund, a
gratuity fund or a provident fund;
an entity that is an Indian financial institution only because it is an
a qualified credit card issuer;
an Investment Advisor or Investment Manager
an exempt collective investment vehicle;
Trustee of Indian Trust
a financial institution with a local client base;
a local bank;
a financial institution with only low-value accounts;
sponsored investment entity and controlled foreign corporation
Sponsored closely held investment vehicle, in case of any U.S. reportable
What is a Non-ﬁnancial entity (NFE)?
Below mentioned additional information to be captured.
Place of Birth
Tax Identification Number
Residence for tax purpose
For new individual and entity customers as of July 1, 2014, assess the presence
of U.S. indicia based on data captured in the account opening forms.
What are the consequences of non-compliance to FATCA?
The details of any non-participating FFIs or recalcitrant investors will be
reported to the local tax authority.
Non-participating FFI is defined as a FFI (Foreign Financial Institution) which
does not comply with FATCA.
recalcitrant investor is defined as an investor who does not respond to requests
for information or fails to provide sufficient documentations. Such accounts are
called recalcitrant accounts.
Is FATCA regulation applicable only to the first holder?
No, FATCA regulation is applicable to all the holders in the account. If the
first holder has the U.S. indicia parameters and the second holder is a
non-U.S. person or vice versa, we must collect additional documents from the
person with U.S. indicia parameters and reporting would be applicable for
all holders who are reportable.
If you are a US citizen or resident or green card holder, please include United
States in the foreign country information ﬁeld along with your US Tax
Identiﬁcation Number while filling up the FATCA / CRS declaration form.
It is mandatory to supply a TIN (Tax Identification No) or functional equivalent
if the country in which you are tax resident issues such identiﬁers. If no TIN
is yet available or has not yet been issued, please provide an explanation and
attach this to the form.
Can the TIN number for investors based out of Dubai and Bahrain be blank as
they do not pay any taxes in these countries?
Yes. Tax ID can be blank for Dubai or any other such Country instead to
obtain functional equivalent for such cases.
can download the FATCA / CRS form from the following web link.
/ CRS Glossary:
Automatic Exchange of Information
Common Reporting Standard
Acceptable documentary evidence to support that an investor is not a U.S.
citizen or U.S. tax resident.
Foreign Account Tax Compliance Act
IRS is the acronym for U.S Internal Revenue Service – a government agency
responsible for tax collection and tax law enforcement. Similar to Income Tax
Department in India
Foreign Financial Institution
US-issued identifier: Global Intermediary Identification Number issued to
Intergovernmental agreement between the US and other countries
A Non Foreign Financial Entity is a foreign entity outside of the United States
that is not engaged in business as a financial institution (such as a bank,
investment fund, or investment entity).
Active Non Foreign Financial Entity which meets the requirements in Model 1 IGA,
Section VI (B) (4).
Passive NFFE with no substantial US owners
Passive Non Foreign Financial Entity (which meets the definition in Model 1 IGA,
Section VI(B)(3), which does not have substantial U.S. owners.
Multilateral Competent Authority Agreement
Non-Participating FFI (NPFFI)
Non-Participating Foreign Financial Institution. A Foreign Financial Institution
(FFI) that has not entered into an FFI agreement with the IRS and/or is not
complying with FATCA regulations.
Refers to any [FATCA Partner] Financial Institution, or other entity resident in
[FATCA Partner], that is identified in Annex II in the Model 1 IGA as a
Non-Reporting [FATCA Partner]Financial Institution or that otherwise qualifies
as a deemed-compliant FFI, an exempt beneficial owner, or an excepted FFI under
relevant U.S. Treasury Regulations.
A Foreign Financial Institution (FFI) that has entered into an FFI agreement
with the IRS.
Prevention of Money Laundering Act 2002
An investor that does not comply with reasonable requests for information
necessary to determine whether that investor is a “US person” or not
Means any [FATCA Partner] Financial Institution that is not a Non-Reporting
[FATCA Partner] Financial Institution.
Entity that registers with the IRS to undertake the FATCA responsibilities on
behalf of sponsored entities
Tax Identification Number in country of tax residence
If you have any questions about your tax residency, please contact your tax