Circular CN-BSD/2014/2: Compliance with US FATCA Requirements for Maldivian Banks

MALDIVES MONETARY AUTHORITY MALDIVES

Circular no: CN-BSD/2014/ 2

1st April 2014

To: All Banks

Dear Sirs,

Re: Compliance to the Requirements under the Foreign Account Tax Compliance Act (FATCA) of the U.S.

As per the foreign Account Tax Compliance Act (FATCA) enacted in 2010 in the United States (U.S.), Foreign Financial institutions (FFIs) are required to report to the U.S. Internal Revenue Service (IRS) information about their US Person (USP) accounts; which are accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest. All banks as defined in the Maldives Banking Act (2010) fall under the definition of FFIs, and hence should comply with the requirements under the FATCA in order to avoid paying a withholding tax imposed on non-compliant FFIs effective 1st July 2014.

An FFI generally will be subject to the withholding tax on any withholdable payments that it receives beginning on July 1, 2014, unless prior to that date, it becomes a “participating FFI” by registering and entering into ‘Participation Agreements’ with the (referred to as an “FFI Agreement”), pursuant to which it agrees to:

(i) perform specified due diligence procedures to identify accounts of USPs and report the required information to the IRS. (ii) withhold on certain types of payments related to such accounts , and (iii) if customer consent is required under local law in order to report, request consent; and after a reasonable period of time, close accounts held by recalcitrant account holders. Information on accounts which are thus closed is not required to be reported under FATCA.

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As per the Maldives Banking Act (2010), the information required cannot be shared without obtaining the customer’s consent. Therefore, in order to meet the requirements of FATCA and the Banking Act, banks need to obtain written consent from existing USP account holders before reporting the necessary information to IRS. Banks should communicate with the existing customers well in advance of executing the FFI Agreement with the IRS, enabling the account holders to comply with reasonable requests for information or to provide acceptable documentation to meet the FATCA obligations. For more information, banks can visit the IRS’s website, http://www.irs.gov/Businesses/Corporations/Information-for-Foreign-Financial-Institutions.

Therefore, banks for which the FATCA has implications should register themselves with IRS, through the IRS registration website before 25th April 2014, and put in place appropriate processes and controls to ensure compliance with FATCA.

A document that lays out the registration process for FFIs is enclosed for your information.

Please advise MMA of the actions taken to meet the requirements under FATCA.

Yours sincerely,

Aishath Zahira Deputy Governor

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Entering Directly into an FFI Agreement with the U.S. Internal Revenue Service (IRS) Under FATCA

Note: The below information is intended for FFIs in jurisdictions not covered by an intergovernmental agreement (IGA) treated as in effect. The treatment of an FFI established in a jurisdiction with an IGA may differ from the treatment described below. An FFI in such a jurisdiction should refer to the applicable IGA.

Under the Foreign Account Tax Compliance Act (FATCA), Foreign Financial Institutions (FFIs) may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners. Unless otherwise exempt, FFIs that do not both register and agree to report the required information face a 30% withholding tax on certain U.S.-source payments made to them. FFIs that enter into an agreement with the IRS may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.

The IRS Webpage for foreign financial institutions has all the necessary information for an FFI to complete the agreement – otherwise known as registration process. The Website is a secure online web application that provides paperless FATCA registration accessible from anywhere in the world, 24 hours a day. You can visit the FATCA Registration Resources page for registration instructions, user guide, frequently asked questions and other helpful tools. The IRS webpage address is: http://www.irs.gov/Businesses/Corporations/FATCA-Registration.

A few reminders about which FFIs will be impacted by FATCA:

➢ FFIs include, but are not limited to:

• 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 many categories of FFIs from the requirement to register and report, including:

• Most governmental entities
• Most non-profit organizations
• Certain small, local financial institutions
• Certain retirement entities

An FFI that registers on the FATCA Registration Website, upon approval, will receive a Global Intermediary Identification Number (GIIN) from the IRS, (unless the FFI is treated as a Limited FFI). The IRS will publish a list of registered and approved FFIs and their GIINs every month. An FFI List search and download tool will also be available to search this list by FI name, GIIN or country. An FFI uses its GIIN as needed to identify that it is registered and approved to U.S. withholding agents and the IRS. U.S. withholding agents may rely on the IRS published list or FFI list search and download tool to verify an FFI’s GIIN and not withhold on payments made to the FFI.

Last updated: March 2014

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FATCA Online Registration System Overview

Under the Foreign Account Tax Compliance Act (FATCA) withholding agents must withhold tax on certain payments to Foreign Financial Institutions that do not agree to report certain information to the IRS about their U.S. accounts, including the accounts of certain foreign entities with substantial U.S. owners. A Foreign Financial Institution may agree to report certain information about its account holders by registering to be FATCA compliant. The FATCA Registration system is a secure, web-based system that Financial Institutions (FIs) may use to register completely online as a Participating Foreign Financial Institution (PFFI), a Registered Deemed-Compliant FFI (RDCFFI), a Limited FFI (Limited FFI), or a Sponsoring Entity.

FATCA Registration can be accomplished most efficiently and effectively through the online registration process that will avoid the need to print, complete, and mail paper forms. This one-stop, electronic registration website presents a short set of questions about the registering Financial Institution, its branches and, where applicable, Expanded Affiliated Group (EAG) Members. The registration system can be accessed via www.irs.gov/fatca-registration.

The FATCA Registration website, designed for secure account management, is a web-based application that contains the following features:

• Allows 24-hour-a-day, seven-days-a-week accessibility
• Allows Financial Institution users to establish an online account, including the ability to establish an access code and challenge questions
• Ensures security for all data provided on behalf of Financial Institutions
• Establishes a streamlined environment for Financial Institutions to register in one place
• Provides Financial Institutions with tools to oversee member and/or branch information
• Displays a customized home page for Financial Institutions to manage their accounts

The FATCA registration website also contains features that provide online communications and efficient delegation of authority for purposes of registration through the website. This enables Financial Institutions the flexibility to manage information for members and branches. Specifically, the electronic registration system:

• Allows Financial Institutions to appoint delegates (Points of Contact) to perform registration tasks
• Generates automatic notifications when a Financial Institution status changes (email notification to check FATCA account)
• Issues the Global Intermediary Identification Number (GIIN)

For further details on information that Financial Institutions should gather and prepare in order to complete the online registration, please see the instructions to the Form 8957.

Financial Institutions are strongly encouraged to use the online registration process once it becomes available. However, the IRS will also accept registrations that are made on paper forms. Paper forms cannot be filed before January 1, 2014. Paper registration for ms will experience slower processing times than online registration, and registrants will not receive a GIIN needed to demonstrate FATCA compliance until processing of their paper form is completed.

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FATCA FI Registration Process

Account Creation	Registration	Submission	Approval
(1) FI Creates FATCA Account Online	(2) FI Completes Registration Form	(3) FI Signs and Submits Registration Form	(4) FI Receives Approval
Receive FATCA ID		After January 1, 2014	Receive GIIN

Step 1: Create an Account

A Financial Institution using the online registration system will be able to create an online FATCA account for itself and for Members of an Expanded Affiliated Group for which it is designated as the Lead.

• Each registering Financial Institution will receive a FATCA ID and will create its own access code to be used to log on to the Financial Institution’s online FATCA account. Branches of a Financial Institution will not have separate accounts, but will be assigned separate GIINs.
• A Financial Institution may register as a Single, Lead, Member or Sponsoring Entity.
  • A Single FI is an FI that does not have any Member FIs and that is registering for Participating Foreign Financial Institution (PFFI) or Registered Deemed Compliant Foreign Financial Institution (RDCFFI) status or itself or one or more of its branches. A Single FI may also include a foreign branch of a United States Financial Institution (USFI) treated as a Reporting FI under a Model 1 Intergovernmental Agreement (IGA) or that has in effect a QI Agreement.
  • A Lead FI means a USFI, FFI or a Compliance FI that will initiate the FATCA Registration process for each of its Member FIs that is a PFFI, RDCFFI, or Limited FFI and that is authorized to carry out most aspects of its Members’ FATCA Registrations. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one Lead FI that will carry out FATCA Registration for a group of its Member FIs. NOTE: An FFI seeking to act as a Lead FI cannot have Limited FFI status in its country of residence.
  • A Member FI is an FFI that is registering as a member of an EAG that is not acting as a Lead FI and that is registering as a PFFI, RDCFFI, or Limited FI. For purposes of registration, a Member FI may also include a foreign branch of a USFI that is treated as a Reporting FI under a Model 1 IGA, or that is renewing its QI Agreement. A Member FI will need to obtain its FATCA ID from its Lead FI. The FATCA ID is used to identify the Member FI for purposes of registration and is not the same number as the GIIN. A GIIN is

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issued to FIs, other than Limited FFIs or Limited Branches, after the FATCA registration is submitted and approved.

• A Sponsoring Entity is an entity that will perform the due diligence, withholding, and reporting obligations of one or more sponsored investment entities or controlled foreign institutions (Sponsored FFIs). An FFI that will also act as a Sponsoring Entity for one or more Sponsored Entities is required to submit a second registration to act as a Sponsoring Entity. The Sponsoring Entity will receive a separate Sponsoring Entity GIIN and should only use that GIIN when it is fulfilling its obligations as a Sponsoring Entity.
• A USFI is a Financial Institution that is a resident of the United States

Step 2: FI Completes the Registration Form

There are four parts to the FATCA Registration Form. An FI will need to complete only the relevant parts of the form for the particular type of registration requested.

• Part 1 must be completed by all FIs to provide basic identifying information about each FI.
• Part 2 should be completed only be a Lead FI and must be completed via the FATCA Registration website. A Lead FI will identify in Part 2 each Member FI for which it is acting as a Lead FI and that is treated as a PFFI (including a Reporting FI under a Model 2 IGA), RDCFFI (including a Reporting FI under a Model 1 IGA), or Limited FFI. Additionally, for purposes of registration, a Member FI may include a foreign branch of a USFI that is registering to obtain a GIIN or to renew its QI Agreement.
• Part 3 should be completed only by an FI, including a foreign branch of a USFI, currently acting as a QI, WP, or WT and that wishes to renew its agreement. NOTE: Part 3 should be completed only by an FI currently acting as a QI, WP, or WT and currently using an issued Employer Identification (EIN) to establish its applicable status. An FI that would like to apply to become a first-time QI, WP, or WT cannot do so using the paper Form 8957 or the FATCA Registration website. Instead, the FI must complete Form 14345 in accordance with its instructions. It is advisable, but not required, for an FI applying for first-time QI, WP, or WT status do so before it submits its FATCA Registration form. For more information about QI, WP, or WT agreements, go to www.irs.gov/fatca.
• Part 4 must be completed by all FIs and requires an FI to certify that the information provided in the FATCA Registration form is accurate and complete and to agree or confirm that it will comply with its FATCA obligations, if applicable, in accordance with the status or statuses for which it has registered itself or any of its branches. An FI, including a Reporting FI under a Model 1 or 2 IGA, that is registering to renew its QI, WP, or WT Agreement will be agreeing to the terms of such renewed 2014 Model QI, WP, or WT Agreement.

Steps 3 and 4: Submission and Approval

The Responsible Officer (RO) will not be able to submit the completed registration form on behalf of the Financial Institution until on or after January 1, 2014, although information can be entered in the FI’s account before then.

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For the period from the opening of the FATCA Registration website through December 31, 2013 an FI will be able to access its online account to modify or add registration information, including its appropriate registration status as such status is established or modified, for example, by the signing of an Intergovernmental Agreement (IGA). Prior to January 1, 2014, however, any information entered into the system, even if submitted as final by the website user, will not be regarded as a final submission, but will merely be stored until the information is submitted as final on or after January 1, 2014. Thus, FIs can use the remainder of 2013 to become familiar with the FATCA Registration website, to input preliminary information, and to refine that information. On or after January 1, 2014 each FI will be expected to finalize its registration information by logging into its online account on the FATCA Registration website, making any necessary additional changes, and submitting the information as final.

Note: Reporting FIs under a Model 1 or 2 IGA: Most Reporting FIs under Model 1 IGA are registering only to obtain a GIIN and to authorize one or more POCs to receive information related to FATCA Registration on behalf of the FI. Most Reporting FIs under a Model 2 IGA are registering only to obtain a GIIN, authorize one or more POCs to receive information related to FATCA Registration on behalf of the FI, and to confirm that they will comply with the terms of an FFI Agreement as modified by the applicable Model 2 IGA.

A Reporting FI operating one or more branches not in an IGA jurisdiction is also agreeing to the terms of an FFI Agreement for any such branch, unless the branch is treated as a Limited Branch. Additionally, a Reporting FI requesting renewal of a QI, WP, or WT Agreement is agreeing to the terms applicable to such renewed 2014 Model QI, WP, or WT Agreements.