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Implementation of the Foreign Account Tax Compliance Act (FATCA) in South Africa

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Background, aims and enactment of FATCA

The Foreign Account Tax Compliance Act (colloquially known as “FATCA”) was enacted by the United States government during 2010, under sections 501-541 of the Hiring Incentives to Restore Employment (“HIRE”) Act.[1]  FATCA was implemented with the aim of counteracting tax avoidance, and aims to improve tax compliance by imposing certain identification- and financial reporting obligations on certain individuals and institutions.[2]

Implementation of FATCA in South Africa

Reflecting the trend towards global financial information-sharing, South Africa and the US entered into an intergovernmental agreement (“the IGA”) on 9 June 2014 (the IGA between the US and South Africa is based on the Model 1 IGA).  The agreement was ratified by Parliament and came into force on 28 October 2014.[3]  The IGA is a bilateral agreement in terms of which South Africa and the US have agreed to exchange certain financial information among one another.  In terms of the IGA FATCA is incorporated into South African domestic law.  Failure on the part of an individual or entity, with the provisions of FATCA as contained in the IGA therefore constitutes a breach of South African law.

Obligations on individuals

As a result of the IGA, all US individuals who have South African financial accounts or other assets above a certain value, in South Africa, must file annual reports about these accounts and assets.[4]

Obligations of financial institutions and entities

Foreign financial institutions (“foreign institutions”) are required to register with the US Internal Revenue Service (“the IRS”), either via the IRS online registration portal, or by filing Form 8957.  Foreign institutions must then report certain information regarding non-US accounts and assets, to the IRS.[5]

Reporting duties of South African financial institutions (as defined in the SARS Guide) (“South African institutions”)[6] are regulated in terms of the IGA and public notices 508 and 509 published in Government Gazette 37778 of 27 June 2014 under the Tax Administration Act 28 of 2011 (“the TAA”).[7]

In accordance with the above provisions, South African institutions must maintain records and collect information specified in the IGA, and submit the relevant information and records to the South African Revenue Service (“SARS”).  The collection and maintenance of records must be done in accordance with the due diligence requirements stipulated in the TAA, as set out in Business Requirement Specification:  Foreign Account Tax Compliance Act Automatic Exchange of Information (BRS:  FATCA AEOI).[8]

SARS will in turn share the information with US Treasury via automatic exchange of information under Article 26 of the existing Convention for the Avoidance of Double Taxation and Prevention of Fiscal Evasion between South Africa and the US.

Reportable information and format of disclosure

Article 2 of the IGA specifies items that should be reported.  These items include financial accounts held by specific US persons, the name, address, US Taxpayer Identification Number (“TIN”) of the accountholder, name and Global Intermediary Identification Number (“GIIN”) of the reporting institution and the account balance or value at the end of the financial year.[9]  Further in accordance with Article 4, payments to non-participating financial institutions must be reported to the IRS.

The South African institution will use forms in the W-series (W-9, W-8BEN and/or W-8BEN-E) for collecting information on its US clients.  The particular form and supporting documents will depend on the classification of the particular US entity.  The IRS has published guidelines regarding the completion of its series of forms which are available on the IRS webpage.

Non-compliance

Failure to comply with the provisions of FATCA may expose an individual or South African institution to penalties for non-compliance.  The penalties have been published in Public Notice 597 Government Gazette 38983 of 10 July 2015, under the TAA.[10]  A South African institution which fails to register with the IRS may also do so to its detriment in that non-registration may subject it to a 30% withholding penalty imposed on any US-sourced income in countries that have not entered into an IGA in terms of FATCA.

Footnotes

Downloads

Form 8957 Foreign Account Tax Compliance Act (FATCA) Registration

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Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)

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Form W-8BEN-E Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)

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Updated Information On Use of Form W-8eci

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Updated Information On Use of Form W-8exp

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Updated Information On Use of Form W-8imy

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W-9 Request for Taxpayer Identification Number and Certification

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