Malta: FATCA Service Offering

What is FATCA?

The US federal income tax system relies on voluntary compliance by taxpayers to self-report their worldwide income and compute their income tax. It is estimated that billions of dollars in taxes are evaded annually by US persons holding offshore accounts.

When voluntary compliance is augmented by third-party information reporting, the IRS is able to verify taxpayer compliance. Therefore, in an effort to curb perceived tax abuse by US persons with offshore bank accounts and/or investments, the US Congress passed The Foreign Account Tax Compliance Act (“FATCA”) into law as a part of a larger legislative bill – the Hire Incentives to Restore Employment Act – which was signed into US law on 18 March 2010.

FATCA introduces a new regulatory compliance and reporting regime which compels certain non-US entities to identify and disclose US persons with offshore financial accounts. This stated intent is achieved by imposing a punitive 30% withholding tax on withholdable payments paid, directly or indirectly, to non-US financial institutions and certain other non-US entities that fail to comply with FATCA.

Malta signed an Intergovernmental Agreement (“IGA”) with the US on 16 December 2013 to improve international tax compliance and to implement FATCA. Although the introduction of the IGA eliminates the punitive 30% withholding tax, the Maltese government committed that all Malta Financial Institutions will comply with the identification and reporting requirements under the IGA.

FATCA as implemented in Maltese law requires Malta Financial Institutions to:

Register with the US Internal Revenue Services
Register with the Malta Commissioner for Revenue
Implement a FATCA compliance programme
Identify all new and pre-existing accounts
Report on Specified US Persons to the Malta Commissioner for Revenue
Who is affected?

FATCA is wide-reaching and will have an impact on both financial and non-financial entities.