CRS and FATCA
The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding bank accounts on a global level, between tax authorities. It was developed by the Organisation for Economic Co-operation and Development (OECD) in 2014 with the purpose of combating tax evasion.
The Foreign Account Tax Compliance Act (FATCA) generally requires financial institutions (FI) and certain other non-financial entities that are foreign to the U.S. to report on assets held by their U.S. account holders or be subject to withholding on withholdable payments.
When a company opens a bank account, the bank will require the company to make a statement as to the company’s status under either CRS or FATCA. A CRS statement will be required from any entity whose beneficial owners are not US citizens. A FATCA statement will be required where any beneficial owners are US citizens. The classification process is far from straightforward, with Banks’ “how to” guides stretching to 20 pages or more. An Acclime professional can assist with the correct classification for your company.
There are 3 categories of classification of companies under CRS. The category will determine whether a bank is required to report the existence of the account to the IRAS, which would then share the information with the tax authority where the beneficial owner is tax resident.
- Financial Institution (FI) – An FI is an Investment Entity (managing investments on behalf of others), a Custodial Entity, a Depository Institution or a Specified Insurance Company. Each of these definitions have a number of sub parts making the classification somewhat complex
- Active Non Financial Institution (Active NFI) – This is a company that is not a FI but carries on an active business AND not more than 50% of its assets are passive assets (e.g. money sitting in a bank account. For operating companies, most will fall in this classification, unless they have substantial bank balances (e.g. from profits not yet distributed).
- Passive Non Financial Institution (Passive NFI) – This is a company that is not an Active NFI.
Depending on your Entity’s classification, and where its resident for tax purposes, it may be a Reportable Person. That means details of the account will be reportable to the tax authority in Singapore. That authority will then send your details to the tax authority where your Entity or Controlling Person(s)is/are tax resident.
Financial Institution – Not reportable
Active NFI – The entity is a reportable entity unless it falls in one of the exemptions (e.g. Government owned, Regularly traded on an exchange, charity)
Passive NFI – The entity is a reportable entity, as is the Controlling Person(s) of the Passive NFI
If Reporting is required, the persons name, Tax ID number and account balance must be reported as well as any dividends, interest or sales proceeds from financial assets that have been paid into the account during the year.
As the classification process is quite complex and there are penalties for getting it wrong, it is advisable to have professional advice regarding the classification of your company. Acclime’s tax experts will be able to assist and advise you as to the correct classification of your company.
Although the definitions under FATCA and CRS are similar, there are differences which could cause your company to have a different FATCA classification from its CRS classification.
Malaysia’s Inter Governmental Agreement (IGA) with the US as regards FATCA is still being finalised. However, the US Treasury, in a letter dated 25th April 2017, has agreed that Malaysia remains on the Treasury IGA list and continues to be treated as if it has an IGA in effect. As a result, banks in Malaysia need to comply with the reporting obligations.
FATCA has 3 categories of company:
- Financial Institution (FI)- this is very similar to the CRS FI definition, but also includes Holding companies and Treasury Centres of financial groups
- Non Financial Foreign Entity (NFFE) – a NFFE is a company that is not a FI but carries on an active business AND not more than 50% of its assets are passive assets (e.g. money sitting in a bank account). For operating companies, most will fall in this classification, unless they have substantial bank balances (e.g. from profits not yet distributed). This is the same definition as Active NFI under CRS.
- Passive NFFE – this is an entity that is not an Active NFFE.
The reporting obligations are similar to CRS for the above entity classifications, with the form that needs to be completed differing based on the classification, and in many cases sub classification of the entity.
The classification process is quite complex and there are penalties for getting it wrong, it is advisable to have professional advice regarding the classification of your company. Acclime’s tax experts will be able to assist and advise you as to the correct classification of your company.