New Reporting Rules from July 2024 – What Businesses Need to Know

What are FATCA and CRS?

1. FATCA: Foreign Account Tax Compliance Act Enacted by the United States in 2010, it aims to combat tax evasion by US citizens and residents holding financial accounts abroad. It mandates foreign financial institutions (FFIs) to report financial information of US account holders to the US Internal Revenue Service (IRS).

1. CRS: Common Reporting Standard Developed by the Organisation for Economic Co-operation and Development (OECD) in 2014, it is a multilateral agreement for automatic exchange of financial account information between participating jurisdictions. Similar to FATCA, it targets tax evasion but applies to a broader range of individuals, not just US citizens.

Compliance Reporting and Ease of Doing Business:

Both FATCA and CRS require RFIs, such as banks, investment firms, and other financial institutions, to:

• Identify and report financial information of relevant account holders to their respective tax authorities.
• Implement robust due diligence procedures to ensure accurate and complete reporting.

While these regulations enhance tax transparency and combat tax evasion, they can add complexity to compliance processes, potentially impacting the ease of doing business for RFIs.

The Role of KYC Registration Agencies (KRAs):

KYC (Know Your Customer) Registration Agencies play a crucial role in facilitating compliance with FATCA and CRS. As per the new July 1st requirement, RFIs in your jurisdiction will be required to:

• Obtain FATCA and CRS certifications from their clients, which verify their tax residency status.
• Upload these certifications onto the system of the relevant KRA.

This centralized system streamlines the process for RFIs and provides authorities with a readily accessible repository of client information for compliance purposes.

FATCA and CRS are crucial initiatives in the fight against tax evasion. The new requirement for uploading client certifications onto KRA systems demonstrates the increasing emphasis on collaboration between financial institutions, tax authorities, and KRAs. While navigating these regulations can be complex, understanding their purpose and utilizing the services of KRAs can help RFIs ensure compliance while minimizing disruption to business operations.