Objectives and legal framework
The US FATCA (Foreign Account Tax Compliance Act) legislation aims to detect and discourage offshore tax evasion by US taxpayers.
This is achieved by compelling non-American financial institutions to report information on financial accounts held by US taxpayers to the US Internal Revenue Service (IRS).
Financial Institutions which are not compliant will be subject to a 30% withholding tax on all incoming US-source payments from financial institutions that are FATCA compliant (including all US financial institutions).
Application in Belgium
Like most European countries, Belgium has chosen to conclude an intergovernmental agreement with the United States, in order to implement the FATCA obligations in the local legislation and to allow for the exchange of bank data with the US.
Under this agreement, which took effect on 1 July 2014, all Belgian financial institutions (banks, insurers and certain investment institutions) are required to identify US taxpayers among their customers and to report information on the accounts held by these customers to Belgian tax administration, which will provide this information to the IRS on an annual basis.
Who is impacted by FATCA?
FATCA is primarily applicable to:
- US legal entities;
- Certain non-US legal entities (so-called passive non-financial entities) with US taxpayer(s) as economic beneficiary(-ies) (US individuals who hold more than 25% of the shares);
- Individuals who are US citizens or residents.
For these customers, identification data, account balances, interest and dividends paid, and the proceeds from the sale of securities are to be reported.
On the other hand, Belgian financial institutions are also required to report all customers who refuse to indicate their status (see above) for FATCA. The data that has to be reported for these customers is the same as for customers recognised as US taxpayers. In this case, it makes no difference if the customer has any ties with the US or not.
What are the practical implications?
BNP Paribas Fortis determines for each existing and new customer whether or not they are a US taxpayer.
For clients with certain characteristics, the legislation requires that additional data must be obtained from the customer to be able to determine their final FATCA status. These customers will be contacted personally by the bank.