FATCA enforcement affecting large portions of the financial services sector, including insurance
More than 100 countries including India, China and Russia have already entered into agreements with the US on the Foreign Account Tax Compliance Act (FATCA) and with new FATCA requirements coming into effect on 1st of January 2015 applying to U.S. and non-U.S insurers and insurance brokers, large portions of the financial services sector are being affected.
After a relatively quiet four-year ramp up, America’s global tax law is now being enforced. FATCA requires foreign banks to reveal Americans with accounts over $50,000 and considering the risks of being frozen out of U.S. markets, everyone is complying.
Firms that fail to comply with FATCA will be subjected to a stringent 30% withholding tax on any US sourced income even if they do not have any US customers. The compliance aspects being forced upon financial services firms globally by the US tax authorities are complex and costly. It includes amending everything, from more thorough KYC requirements to changes in the account opening processes for new customers to take into account the new information required under FATCA, and systems will have to be updated to comply with the withholding taxes if so required. Insurers and insurance brokers will have to comply with new information gathering and reporting rules when U.S. insurance and reinsurance premiums are sent outside the U.S.
