Chairman of the Board of Directors

Circular Letter

No. (3) of the year 2014 dated 14/4/2014
Regarding the regulation of procedures for implementing the US Tax Compliance Law (FATCA) Regarding accounts of US persons dealing with Non-banking financial market institutions

Introduction:

In the context of the General Authority for Financial Supervision's commitment to fulfilling its assigned role, and in light of the issuance of the US Tax Compliance Law (FATCA) by the United States government, which requires US citizens with financial assets outside the US territory to report data on those assets to the US Internal Revenue Service (IRS), as well as the provisions of that law obligating foreign (non-US) financial institutions to report accounts of their customers who are US persons when they deal with them.

And in preparation for the issuance of regulatory decisions regarding the coordination mechanism between the Arab Republic of Egypt and the United States of America concerning customers of financial institutions who are US persons.

It has become necessary for the Authority to keep pace with this by directing non-banking financial institutions under its supervision through two parallel axes:

First: An awareness axis in which the Authority defines the law, its provisions, and its implementation mechanisms and those aligned with its provisions.

Second: An operational axis in which the Authority issues the necessary decisions and circular letters to urge companies under its supervision to take the necessary steps to align with the state's approach in implementing the US Tax Compliance Law.

Therefore

And after reviewing Law No. 10 of 2009 and related and consequential laws, we have issued our letter as follows:

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Article One

Circular Letter No. 1 of 2014 issued on 1/1/2014 is repealed.

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Article Two

The term "Financial Institutions" in the application of the provisions of this Circular refers to non-banking financial institutions subject to the supervision and oversight of the General Authority for Financial Supervision pursuant to Law No. 10 of 2009, which are classified into one of the following categories:

• Securities brokerage companies.
• Portfolio formation and management companies.
• Investment funds.
• Custodians.
• Insurance companies (regarding policies with an investment component).
• Real estate financing companies.
• Private insurance funds.

Article Three

The term "US Person" according to the Tax Compliance Law (FATCA) refers to anyone who:

• A citizen holding US citizenship and another nationality (dual citizen).
• A US citizen, whether residing inside or outside the United States.
• A holder of a US passport.
• A person born in the United States unless they have renounced US citizenship.
• A lawful permanent resident of the United States (i.e., a Green Card holder).
• Subject to the substantial presence test, which is a non-US resident who has been in the United States for a minimum number of days calculated by counting all days of the current year, or one-third of the days of the immediately preceding year, or one-sixth of the days in the second preceding year, and is not a diplomat, lecturer, student, or athlete.
• Any domestic partnership or corporation (within the United States of America).

Article Four

Financial institutions referred to in Article Two must adhere to the following standards required for compliance with the US Tax Compliance Law as follows:

First: Registration and Signing of the Agreement.

The financial institutions mentioned in Article Two must sign the agreement with the US Internal Revenue Service by 25/4/2014 to be included in the registry by 2/6/2014, with a maximum deadline of 30/3/2014.

Registration and signing are done through a link on the US Internal Revenue Service website (www.irs.gov/fatca-registration), and the foreign financial institution is assigned a unique identification number (GIIN) Global Intermediary Identification Number.

This agreement with the US Internal Revenue Service must be renewed every three years (maximum) with each foreign financial institution or with the competent government authority according to the method applied by each country.

Second: Due Diligence Procedures within the framework of FATCA legal requirements

The financial institutions referred to in Article Two must do the following:

• Take specific measures to identify and exercise due diligence regarding their new and existing customers as follows:

  1- Applying Due Diligence for New Customers (New Accounts)

  a. All foreign financial institutions must, as of July 1, 2014, apply due diligence procedures for new persons and beneficial holders of US citizenship or for whom any indicators suggest they may be US persons subject to tax, and this requires reviewing the information provided upon opening the account (contracting) according to the due diligence rules stipulated in the FATCA law.

  b. For entities, they must be required to determine if there are US beneficial owners through obtaining a certificate from the account holder.

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US INDICIA Identity Indicators

US Identity Indicators	Required Documents
US citizenship or lawful permanent residence in the United States	Obtain Form (W-9)
Place of birth in the United States	- Obtain Form (W-9) or<br>- Form (W-8BEN), and a non-US passport or other documents indicating foreign nationality; or a reasonable written explanation showing the account holder's renunciation of US citizenship or reason for not obtaining US citizenship at birth.
US address (residence, correspondence, PO box number)	- Obtain Form (W-9) or<br>- Form (W-8BEN), and a non-US passport or other documents indicating foreign nationality.
Existence of standing instructions to transfer funds to an account in the United States or existence of regular instructions from a US address	- Obtain Form (W-9) or<br>- Form (W-8BEN), and documents confirming non-US identity.

c. Non-compliant customers are:

• Those who refuse to respond to the foreign financial institution's request to provide data that will determine if the customer is a US person or not.
• Those who refuse to sign Form W8-BEN or W8-BEN-E for companies.
• Those who refuse to provide the necessary data to report to the Internal Revenue Service.
• Those who refuse to sign a declaration agreeing to disclose the confidentiality of their accounts to the US Internal Revenue Service.
• Those who refuse to sign Form W9.

2- Applying Due Diligence Procedures for Existing Customers

a. For Accounts Existing Before July 1, 2014

• Accounts whose average balance or value does not exceed $50,000 or its equivalent in Egyptian currency are not subject to [compliance requirements].

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Article Five

Second: Due Diligence Procedures within the framework of FATCA legal requirements

Third: Obligations of Foreign Financial Institutions (the method of communication with the US administration will be determined later).

Fourth: Audits and their types and timing (the method of communication with the US administration will be determined later).

Fifth: Retention of Documents.

First: Registration and Signing of the Agreement.

The financial institutions mentioned in Article Two must sign the agreement with the US Internal Revenue Service by 25/4/2014 to be included in the registry by 2/6/2014, with a maximum deadline of 30/3/2014.

Registration and signing are done through a link on the US Internal Revenue Service website (www.irs.gov/fatca-registration), and the foreign financial institution is assigned a unique identification number (GIIN) Global Intermediary Identification Number.

This agreement with the US Internal Revenue Service must be renewed every three years (maximum) with each foreign financial institution or with the competent government authority according to the method applied by each country.

Second: Due Diligence Procedures within the framework of FATCA legal requirements

The financial institutions referred to in Article Two must do the following:

• Take specific measures to identify and exercise due diligence regarding their new and existing customers as follows:

  1- Applying Due Diligence for New Customers (New Accounts)

  a. All foreign financial institutions must, as of July 1, 2014, apply due diligence procedures for new persons and beneficial holders of US citizenship or for whom any indicators suggest they may be US persons subject to tax, and this requires reviewing the information provided upon opening the account (contracting) according to the due diligence rules stipulated in the FATCA law.

  b. For entities, they must be required to determine if there are US beneficial owners through obtaining a certificate from the account holder.

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Article Six

Third: Obligations of Supervised Financial Institutions

First: General Obligations

a. Compliance Management System

The financial institutions referred to in Article Two must establish a compliance management system including the following:

• 1- Establish an internal system to monitor US customer accounts and their transactions.
• 2- Modify computer systems in financial institutions and account opening documents (contracting) to include certain information required to implement FATCA law requirements.
• 3- Existence of Alerts for notification in case of expiration of documents obtained by the institution.
• 4- Review of documents and potential candidates in the framework of implementing the FATCA law.
• 5- Determination of different functional levels within the institution regarding the implementation of the FATCA law.

b. Policies

The following should be considered when establishing policies:

• 1- Mechanisms for managing customer risks must be established when implementing the FATCA law.
• 2- Customer acceptance policies must include procedures and instructions for opening accounts (contracting) for persons holding US citizenship or those who have any potential indicators of US identity, as well as the circumstances under which the institution may not accept a new business relationship, or which require terminating an existing business relationship based on the inability to meet FATCA law requirements.
• 3- Conduct training programs for institution employees to familiarize them with the US tax law and the requirements of this law.

c. Procedures

The following should be considered when establishing internal procedures for the institutions referred to in Article Two:

• 1- Consider obtaining the following data and information as a minimum when establishing a business relationship with the customer, in addition to what is stated in the identification rules issued by the Authority in this regard:

  • The customer's other nationality (if any).
  • The customer's place of residence abroad (if any).

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Article Seven

• The extent to which the Long-Term Residence Standard (Substantial Presence Test) in the United States of America applies to the customer.

• The customer's correspondence addresses abroad (if any).

• The extent of existence of standing instructions to transfer funds to an account abroad or the existence of regular instructions from an address abroad.

• The extent of existence of customer phone numbers abroad.

• US persons or US entities who own a significant share (10% or more shareholding) or exceed voting rights in legal persons.

• Determination of the country in which the legal person was established in case it was established abroad.

• Taking necessary measures to determine if the beneficial owner – whether a natural or legal person – is a US person, taking into account their ownership of a significant share in another legal person that has control over the customer.

• Establishing a specific schedule to update customer data according to FATCA law requirements based on their total balances.

• Considering ensuring the update of data for legal person customers to determine the entry or exit of new partners who require additional procedures regarding them; such as the appearance of an indicator including US persons.

• Considering that customer identification procedures include renewing their data to the extent that allows identifying customers who have permanent residence in the United States, and customers and entities whose account movements reflect incoming or outgoing transfers from the United States on a recurring basis.

• Considering the application of account review procedures to identify Indicia for Egyptian persons dealing with the account in addition to shareholders with a share of 10% or more.

• Obtaining a Waiver from US customers through the attached declaration, while observing the following:

  • The authorization is not fulfilled unless it is for the US customer only.
  • The Egyptian entity is not generalized to have access to this information.

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Article Eight

• Fulfilling the authorization on an independent sheet instead of including it in the account opening form.
• Fulfilling the authorization through the Customer Relationship Manager (Relationship Manager) as much as possible.
• Including the employee alert procedure manual to perform any formal or informal practices – directly or indirectly – that would help customers avoid complying with FATCA law requirements.
• Creating records to register information and correspondence exchanged with the US Internal Revenue Service.
• And establishing a system for retaining those records and documents including the conditions stipulated in the FATCA law.

Third: Obligations towards the US Internal Revenue Service (*)

a. Information Required for Disclosure to the US Internal Revenue Service (IRS)

• Name, address, and Tax Identification Number (TIN) for each US person who is the account holder.
• Account number (or equivalent serving the same purpose in case of no account).
• Name and Identification Number of the reporting financial institution (GIIN).
• Account balance or value (including the case of a cash insurance contract or pension contract, or old value) starting from the end of the relevant tax year or the appropriate reporting period, or if the account was closed during this year, immediately before closing it.
• Total (number / value) of non-compliant active and dormant accounts.

b. Reporting on Non-Compliant Account Holders

Financial institutions must report the following information for each calendar year:

• Total number and total balance or value of accounts owned by non-compliant account holders at the end of the calendar year (dormant and active).
• Total number and total balance or value of accounts owned by non-compliant account holders at the end of the calendar year excluding accounts that show indicators suggesting the account is US.
• Total number and total balance or value of accounts owned by non-compliant account holders at the end of the calendar year excluding accounts that do not show indicators suggesting the account is US.

(*) The method of communication with the US administration will be determined later.