Compliance with the Foreign Account Tax Compliance Act (FATCA)

(Unofficial Translation) 

Compliance with the Foreign Account Tax Compliance Act (FATCA)

What is FATCA?

FATCA, which stands for the Foreign Account Tax Compliance Act, is a United States law. The main purpose of FATCA is to prevent individuals and juristic entities with U.S. person status from avoiding taxation by holding accounts, for financial transaction purposes, with financial institutions outside the U.S.A.

FATCA requires foreign (i.e., non-U.S.) financial institutions("FFIs"), including commercial banks, to report information about accounts held by U.S. individuals and U.S. owned juristic entities and income credited to such accounts and in some cases to withhold tax on withholdable payments paid to certain accounts and remit the withheld taxes to the U.S. Internal Revenue Service (IRS).

How does FATCA affect financial institutions?

FATCA requires that FFIs, usually referring commercial banks, saving policy issuing insurance companies, asset management companies and securities companies—including entities under Stock Exchange of Thailand— either agree to participate in the FATCA program by entering into an agreement with the IRS to report information on financial transactions of their U.S. individual or U.S. owned juristic customers to the IRS on an annual basis or be subjected to withholding tax prescribed under FATCA.

Why do Thai Financial Institutions have to comply with FATCA?

FFIs in Thailand often have substantial volume of financial transactions with financial institutions and commercial banks worldwide. Therefore, in order to avoid unnecessary withholding tax or from being denied the right to engage in financial transactions by other participating financial institution counterparties with whom they do business worldwide, financial institutions in Thailand cooperate with the IRS's requirements under FATCA.

What is the impact for Thai financial institutions' customers?

From 1 July 2014, Thai financial institutions need to request additional information from customers wishing to enter into financial transactions such as opening a new account. Customers will normally be requested to provide information in forms designed by Thai financial institutions. For those customers who are not specified U.S. persons and do not appear to be U.S. persons, no further action is required after completion of the form. However, if a customer (i.e., an account holder or

payee) is a U.S. person or appears to be a U.S. person, they will be required to complete an IRS form in which the customer declares his or her U.S. or non-U.S. status to the financial institution.

Questions & Answers

Q:      Why do Thai individuals have to provide further information and Thai juristic customers have to complete an entity status certification and information disclosure consent form under FATCA?

A:      Under FATCA, from 1 July 2014, financial institutions must conduct identification due diligence on all customers executing certain types of transactions with them. Therefore, financial institutions have adjusted their existing forms and designated an entity status certification and information disclosure consent form under FATCA for the customers to certify their status to determine if the customer is a U.S. person.Please note that a U.S. person status is not determined exclusively by U.S. citizenship. Customers may have other indications of U.S. status, such as U.S. place of birth, U.S. address, etc.

Q:      What are the indications of potential U.S. status?

A:      Under FATCA, the indications of potential U.S. status include:

For individuals

• U.S. citizenship, U.S. place of birth, U.S. permanent residence (i.e., green-card);

• a current residence or contact address in the U.S.;

• a temporary residence in the U.S. or having been present in the U.S.A. for more than 183 days.

• a U.S. telephone number;

• a power of attorney authorizing other persons with U.S. residence to handle accounts on the individual's behalf;

• standing instruction to transfer amounts to accounts in U.S. 

For juristic entities

• a place of incorporation in one of the States of the U.S.;

• being a U.S. related company with U.S. shareholders owning shares, either directly or indirectly, in excess of 10 percent.

Q:      What is the required action if customers who are U.S. persons or appear to be U.S. persons wish to enter into financial transactions?

A:      Customers will be requested to complete any of the following self-identification forms:

          • Form W-9 to verify their U.S. individual or juristic status and identify their Tax

Identification Number (TIN);

• Form W-8BEN to verify their non-U.S. individual status, together with supporting documents; or

• Form W-8BEN-E to verify their non-U.S. juristic status, together with supporting

documents. 

Nevertheless, financial institutions may request from customers additional documents or evidence to affirm the non-U.S. status of individuals and entities.

Q:      If the customers are not U.S. persons and there is no indication of U.S. status and they do not wish to invest in instruments receiving income from U.S., do these customers need to fill form W-8BEN or W-8BEN-E?

A:      If the customers confirm their status through documents provided by the financial institutions and there is no indication of U.S. status, the customers do not have to fill form W-8BEN or W-8BEN-E.

Q:      Will the financial institutions impose withholding tax on U.S. individuals or juristic customers on behalf of the IRS?

A:      If U.S. individuals or U.S. owned juristic customers cooperate and comply with the FATCA requirements, the financial institutions will have no duty to withhold tax on behalf of the IRS but will merely compile and report information on these accounts and financial transactions to the IRS.

Q:      Are the financial institutions required to report information of all customers to the IRS? What is the schedule of such report?

A:      The financial institutions will report information of their U.S. individual or juristic customers only, such as account holder names, addresses, TINs, account numbers, account balances as of the end of the year. If the customers are recalcitrant, the report will be made in pooled basis.

Q:      If the customers refuse to cooperate with the financial institutions, how would the customers be affected?

A:      The financial institutions may deny the customer financial services or if there is an investment of U.S. source there would be a withholding tax of 30%.

Q:      If the customers use copies of W-8BEN, W-8BEN-E or W9 they prepared beforehand, is it acceptable?

A:      Yes, of course.

This document is intended only to provide information to customers of financial institutions, and is not advice or an offer of any advice on the U.S. taxation law. Should you have any questions relating to such law, please seek advice from your professional tax adviser or obtain additional information on www.irs.gov/FATCA.