Money cash Shekels currency 521.
(photo credit: Reuters)
This article is relevant to US citizens and green card holders living in Israel. The Foreign Accounts Tax Compliance Act is due to be implemented on July 1. The Bank Controller at the Bank of Israel has just issued a directive to Israeli banking institutions to comply with FATCA.
What is FATCA?
FATCA was enacted in the US in 2010 as part of the Hiring Incentives to Restore Employment Act, in an effort to combat tax evasion by US persons holding investments in offshore accounts.
Under FATCA, certain US taxpayers holding financial assets outside the US must report those assets to the IRS.
FATCA will also require foreign financial institutions (FFIs) to report to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.
FFIs that do not register with the IRS and agree to report may face a 30 percent withholding tax on various US-source payments made to them.
FFIs include: depository institutions (for example, banks); custodial institutions (for example, mutual funds); investment entities (for example, hedge funds or private equity funds); certain types of insurance companies that have cash value products or annuities.
The FATCA regulations exempt various categories of FFIs from the requirement to register and report, including: most governmental entities; most nonprofit organizations; certain small local financial institutions; certain retirement entities.
The Bank of Israel directive:
The Bank Controller at the Bank of Israel issued a directive to Israeli banking entities on March 16, 2013. The directive refers to FATCA regulations issued by the US Treasury on January 17, 2013 that will be implemented on July 1, 2014.
The directive also points out that a beneficial intergovernmental agreement is being negotiated by the US and Israeli governments regarding FATCA, but has not yet been finalized.
Therefore, the Bank of Israel issued a notice on March 16 instructing the Israeli banks to prepare to implement FATCA on July 1, whether or not the intergovernmental agreement is signed. Specifically, the banks received instructions regarding: (1) governance – appointing a responsible person, setting up a team, fixing policies and procedures, reporting to management and the board, (2) consideration of the need to register and sign a FATCA agreement with the US authorities within the prescribed time limits, (3) how to handle customers, in particular, the possibility of refusing to grant banking facilities to a client who does not cooperate as required under the FATCA regulations.
The US FATCA regulations will be upon us in July this year.
And for good measure, the Knesset is also considering a bill that would enable Israel to sign up to multilateral information exchange agreements.
This would include an OECD agreement for global information exchange based on FATCA.
As always, consult experienced tax advisors in each country at an early stage in specific email@example.com
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.
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