Under the Foreign Account Tax Compliance Act (FATCA) payments by US residents to foreign financial institutions can be subject to a 30% withholding tax from 1 January 2013 unless the foreign financial institution meets reporting obligations with the Internal Revenue Service (IRS). 

The purpose of the legislation is to stop perceived tax avoidance by US residents investing in US investments via foreign funds and to raise funds to meet the US stimulus package.

The payments that will be subject to the withholding include interest, rents, royalties, dividends, salaries, compensation, and gross proceeds received on the sale of shares and debt.

Funds investing in US investments appear to have two choices as a result of this legislation.  Prevent US residents from investing in the fund and report to the IRS that there are no direct or indirect US resident investors, or disclose the direct and indirect US owners to the IRS.

Key parts of the new rules will be announced in notices issued by the IRS.  As a result there are currently many  details missing on how the system will work.

Please contact us if you would like assistance from a Moore Stephens US firm on how these rules will affect your fund.

Author: Allan Mortel, Moore Stephens Sydney


Contact

Allan Mortel
T +61 2 8236 7700
amortel@moorestephens.com.au

www.moorestephens.com.au