The island economy, recently rated “largely compliant” in an OECD review, is now gearing up to become “fully compliant”, and Foreign Account Tax Compliance Act (FATCA) can form one of the critical pillars for ensuring greater financial transparency.
Clairette Ah-Hen, CEO of Mauritius’ Financial Services Commission (FSC), said, “The aim of the Act is to ensure that all financial institutions, wherever they may be based, operate under a system that allows the United States to uniformly impose its tax laws on US citizens.” The agreement between the United States and Mauritius was signed last month by Xavier Luc Duval, the Finance Minister of Mauritius, and Shari Villarosa, US Ambassador to Mauritius.
Ah-Hen added that FATCA allows a country to identify those US citizens who may otherwise use a maze of foreign investments and accounts to hide their income and assets offshore.
Thus, FATCA is essentially a US legislation to prevent US citizens from indulging in tax avoidance by using offshore banking facilities. As FATCA applies to financial institutions based outside the US, its purpose is not to raise revenue but to track US persons who hide income and assets overseas.
Signing the FATCA agreement allows a country to know who among all US citizens or US tax residents, whether living in the US or not, report their foreign financial assets that exceed certain thresholds to the US Internal Revenue Service (IRS).
FATCA imposes a 30% withholding tax on payments of income originating in the US that are made to non-US financial institutions unless they enter into an agreement with the US IRS and disclose information about their US account holders.
In this context, to assist in implementation of the FATCA, it is advised that all Foreign Financial Institutions (FFIs) enter into agreements to provide information about their US customers to IRS. The IRS enables the alignment of all key stakeholders, including operations, technology, risk, legal and tax, thus playing a crucial role in FATCA’s implementation across countries.
With FATCA, US persons who are behind foreign financial holdings are identified with the help of their corresponding investment information such as name, address, account number, account balance and income derived from such investments to the US Inland Revenue Service.
As from July 2014, FATCA will require information to be provided for all accounts in existence. Within nine months after the end of the relevant calendar year, this information should reach the US. Essentially, FFIs must submit their 2014 report to the US by September 30, 2015.
To ensure these information requirements are met, data such as the individual’s US taxpayer identification number should be given to financial institutions when accounts are opened, starting July 2014.
Like Mauritius, other countries such as Netherlands, Bermuda, Malta, Jersey, Guernsey and the Isle of Man were also added to the list of countries which signed the agreement in December 2013, giving FATCA more teeth.
More business news on Africa Money