Information for LOM Customers regarding International Tax Information Exchange
Several different tax reporting and information exchange programs have come in to effect in the last several years.
More detailed information is provided below on the following:
1. Common Reporting Standard (“CRS”) – effectively a ‘global FATCA’, eventually affecting most account holders.
2. U.S. FATCA – affects United States residents, citizens and green card holders, including beneficial owners of certain non-US legal entities (certain companies and trusts).
3. U.K. FATCA – applied to United Kingdom residents with BERMUDA domiciled investment accounts. This program expired at the end of 2017, replaced by CRS.
OECD Common Reporting Standard (“CRS”)
To encourage tax transparency and prevent international tax evasion, the Organisation for Economic Co-operation and Development (“OECD”), in co-operation with the G20 countries and the European Union, developed a new standard of international tax information exchange known as the “Common Reporting Standard” or “CRS”. The Common Reporting Standard became effective in respect of certain CRS jurisdictions on 1 January 2016.
CRS is similar to the U.S. FATCA reporting program previously in place for US persons. CRS requires financial institutions in participating jurisdictions to identify and report to their local tax authorities details of accounts held by their customers resident in other participating, reportable jurisdictions. The local tax authorities will then exchange this information on an annual basis with other tax authorities in participating, reportable CRS jurisdictions where account holders are resident.
As of June 2018, 106 jurisdictions (including Bermuda and the Bahamas) have committed to implementing the CRS, and more are expected to follow. [see https://www.oecd.org/tax/transparency/AEOI-commitments.pdf ]. The only developed country not participating at this time is the United States.
CRS became effective in Bermuda and at least 48 other countries as of January 2016, with the first reporting in September 2017 (for 2016 activity) for certain reportable accounts, and reporting in 2018 (for 2017 activity) for all reportable customers. [Pre-existing entity accounts that were valued under $250,000 at end of 2017 and subsequent year-ends are not reportable until they exceed that threshold.]
CRS became effective in the Bahamas in June 2017. First reporting took place in July 2018 (for 2017 activity), for reportable accounts opened after 30 June 2017, and for high-value (>$1 million) individual pre-existing reportable accounts. All reportable accounts will be reported beginning in 2019 (for their 2018 activity). [Note pre-existing entity accounts under $250,000 in value at end of 2018 are exempt from reporting unless and until they increase in value above that threshold at a later year end.]
Only certain CRS-participating countries (approximately half) have chosen to receive CRS reporting; these are classified as ‘Reportable Jurisdictions’ under CRS. (see current Bermuda list of Reportable Jurisdictions below; Bahamas list available on request). These lists are subject to change.
For example, the Cayman Islands is a participating CRS jurisdiction, however they are not currently a Reportable Jurisdiction. Thus, all financial institutions in Cayman must participate in CRS and report on their reportable customers. However, for a financial institution in another country that has a Cayman-resident client, the institution does not report that client under CRS. Alternatively, Germany is a reportable jurisdiction. Thus a Germany-resident customer of LOM Bahamas or LOM Bermuda would be reported to the local tax authorities and subsequently to the German tax authority.
For individual/joint accounts, whether they are reportable depends on the country of tax residence of the account holders and whether that country is a Reportable Jurisdiction. For entity accounts (corporate, trusts, etc), it depends on the type of entity, where it is resident (generally, where it is incorporated) and in the case of entities classified as passive non-financial entities, where its controlling persons are tax resident. Definitions of passive non-financial entities are contained in the CRS-E forms. The typical, closely-held IBC used to hold investment assets would usually meet the definition. Controlling persons of such entities would be beneficial owners with interests of 25% or more. Controlling persons of trusts include beneficiaries, trustees, protectors and settlors.
If an account is reportable, information about the account, account holder(s) and any reportable controlling persons is submitted to a local CRS portal maintained by the governments of the relevant account jurisdiction (i.e. Bermuda or Bahamas). Participating CRS countries that are Reportable Jurisdictions will subsequently receive the information for their tax residents from the portal.
Information exchanged will include the customers’ name, address, date of birth and tax identification number (TIN), and information about financial accounts, such as account value, total income and dividends received and gross sales proceeds. If a TIN is not on file for a pre-existing account, the other information available will be reported.
In order to comply with CRS, all financial institutions (e.g. banks, brokerage firms, mutual funds and insurance companies) in participating jurisdictions must perform due diligence on their customers, and obtain self-certifications regarding their customers’ tax residency.
If you have any questions regarding this notice, please contact a qualified tax advisor. This notice does not and is not intended to constitute tax advice, and neither LOM Financial nor its officers or employees are authorised or qualified to provide tax advice to customers.
More information is available on the OECD website: http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/
U.S. Foreign Account Tax Compliance Act (FATCA)
Customers, account signatories or beneficial owners that are U.S. citizens, U.S. residents or green card holders, or that were born in the United States should read the following notice:
LOM is registered as a participating foreign financial institution under FATCA regulations. Customer accounts determined to be “U.S. Accounts” under the regulations will be reported annually to the U.S. Internal Revenue Service beginning in 2015. Bermuda signed a “Model 2” Intergovernmental FATCA agreement (“IGA”) with the U.S. on December 19, 2013. Bahamas signed a “Model 1” IGA with the U.S. on November 3, 2014.
“U.S. Accounts” may include, but are not limited to:
- Individual or joint accounts with a U.S. citizen or U.S. resident as an owner or accountholder
- Where the account holder is a U.S. corporation, partnership or trust
- Foreign corporations with one or more U.S. persons owning more than 10% of the entity (with some exceptions depending on the type of corporation)
- Foreign trusts where the grantor is a U.S. person, or more than 10% of the beneficial interest is held by one or more U.S. persons
- An account with a U.S. citizen or U.S. resident as an account signatory or POA
Note individuals born in the United States are considered U.S. citizens unless they can provide documentation evidencing renunciation of citizenship.
Beginning as of January 1, 2014, accounts deemed to be U.S. accounts under FATCA will be reported to the IRS at various subsequent reporting deadlines. For more information, contact your account advisor. Also see the IRS Website.
Bermuda CRS Reportable Jurisdictions (as of May 2018, subject to change)