Foreign Account Tax Compliance Act (FATCA)

FATCA stands for the Foreign Account Tax Compliance Act (FATCA). It was introduced in October 2009 and signed into law in March 2010 as part of Hiring Incentives to Restore Employment (HIRE) Act.

FATCA is designed to prevent tax-evasion by U.S. citizens or residents holding foreign accounts or offshore investments. Under the new FATCA regulations, foreign financial institutions (FFIs) must identify U.S. account holders as well as entities under U.S. control (i.e. U.S. persons having a substantial ownership interest in the entity) and provide the IRS with information on their assets, income payments and trade flows during the fiscal year. FATCA regulations generally become effective on or about July 1, 2014.

To be FATCA compliant, Rakuten Securities HK must register its own FFIs with the IRS. In addition, FATCA regulations require Rakuten Securities HK to review existing onboarding and withholding processes and enhance them to comply with the regulations.

As part of an enhanced client onboarding process, additional documentation may be requested for clients holding accounts at Rakuten Securities HK. For instance, Rakuten Securities HK may need to obtain tax forms (i.e. W9/W8 series documents) after July 1, 2014, from both new and existing accountholders in order to identify the client’s tax classification.

In order to determine if tax withholding is applicable, Rakuten Securities HK must authenticate the residency of its accountholders. For instance, if an account is held by a non U.S. citizen or non U.S. registered business entity, Rakuten Securities HK may require a Certification of Foreign Status, such as Form W8-BEN or W8-BEN-E for the account. Similarly, if an account is held by a U.S. citizen, U.S. resident alien or U.S. business entity, the accountholder may be required to certify his/her tax status by completing a Form W-9.

U.S. citizens or corporations may complete a W-9 form.

Instructions for non-US citizens or corporations can be found in detail here, and are generally outlined below for your convenience:

• W-8BEN – non-US individual (unless individual falls under below classification)
• W-8BEN-E – non-US entity (unless entity falls under below classification)
• W-8ECI – non-US person with claim that income is effectively connected with the conduct of a trade or business in the United States
• W-8IMY – non-US intermediary, non-US flow-through entity, or non-US trust
• W-8EXP – non-US government, international organizations, non-US central banks of issue, non-US tax-exempt organizations, non-US private foundations, or governments of US possessions

The outline provided above is not intended to be exhaustive and is not warranted or guaranteed by Rakuten Securities HK as to its completeness or accuracy. For assistance with selecting and completing the tax Form applicable to you, please consult a qualified tax professional.

Under the new FATCA regulations, withholdable payments do not include foreign exchange payments. Although gains on foreign exchange contracts are generally reported to the IRS as gross proceeds, FATCA regulations appear to apply to proceeds from the sale or disposition of property capable of producing interest or dividends from sources within the United States. Of note, this is subject to change if FATCA regulations are amended or revised. Please consult a qualified tax professional for additional assistance.

An Intergovernmental Agreement (IGA) is a bilateral agreement between the U.S. government and a country’s tax authority that facilitates compliance with FATCA. More than 50 countries are currently negotiating an IGA.

• In countries with a Model 1 IGA, FFIs will comply under local legislation and report to their local tax authority; in turn, the local tax authority will exchange information with IRS.
• In countries with a Model 2 IGA, FFIs will comply with local legislation to enter into agreements with, and report directly to the IRS.

Rakuten Securities HK is carefully analyzing the final regulations and IGAs. Current timelines indicate global compliance on or about July 1, 2014. Rakuten Securities HK will update the clients that are impacted by FATCA once details are finalized.

The IRS website offers additional information regarding FATCA compliance. You may also reference the U.S. Department of Treasury website for supplementary information on IGAs.