How to Determine Financial Institutions under FATCA?
On this page, you will find how to:
- Understand FATCA reporting.
- Determine what qualifies as a Reporting Financial Institution (RFI).
- Register as an RFI.
- Meet the due-diligence and reporting requirements for RFIs.
Financial Institutions in South Africa must meet due-diligence requirements so that reportable accounts can be found and their prescribed information be reported. (The FATCA IGA labels Financial Institutions as Foreign Financial Institutions or FFIs). Financial Institutions include South African banks and custodians; brokers; asset managers; private equity funds; certain investment vehicles; long-term insurers; and other participants in the financial system. A Financial Institution must determine if it has a reporting obligation in terms of the FATCA IGA. To do so, Financial Institution or its representative should ask:
- Am I a Financial Institution?
- Do I maintain financial accounts?
- Are there indicators that any of the account holders are a U.S. person or a specified U.S. person?
- After applying the prescribed due diligence, do I have any reportable accounts?
- Am I a Non-Reporting Financial Institution, or do I have accounts that are excluded from the definition of Financial Account under Annex II of the FATCA IGA?
Certain Financial Institutions or financial accounts are specifically excluded under the FATCA IGA. Such entities can be exempt beneficial owners, FFIs deemed compliant, or accounts which are excluded from the definition of Financial Accounts described in Annexure II of the FATCA IGA.
How to Determine Financial Institutions in South Africa?
The FATCA IGA sets out the criteria by which South African Financial Institutions are deemed to be FFIs. These criteria may differ from the general FATCA requirements. An entity must ask three questions to determine if it has a reporting obligation:
- Is the entity South African?
- Is the entity a Financial Institution?
- Is the entity a FATCA IGA Annex II Entity?
Step 1: Is the Entity South African?
An “Entity” is defined in the FATCA IGA as a legal person, such as a company, or a legal arrangement such as a trust, partnership, or association. An individual or group of individuals acting together will not be classified as an entity. Even though a trust is not considered an entity under SA common law, it is treated as an entity for AEOI. A South African Financial Institution is:
- A Financial Institution resident in South Africa, excluding any branch of such Financial Institution that is located outside South Africa, and
- Any branch of a Financial Institution not resident in South Africa, if the branch is located in South Africa.
For purpose of the FATCA IGA, the Financial Institution will be resident in the country where the Financial Institution is located. A company not resident in South Africa may conduct its business in South Africa in its own name either through a South African branch or a South African subsidiary. These branches and subsidiaries of Financial Institutions that are located in South Africa are South African Financial Institutions (SA FI) per FATCA.
Step 2: Is the Entity a Financial Institution?
An SA FI will be a “Financial Institution” under the IGA if it falls within any one or more of the following categories:
- Depository institutions (e.g. banks).
- Custodial institutions (e.g. mutual funds).
- Investment entities (e.g. hedge funds or private equity funds).
- Certain types of insurance companies that have cash-value products or annuities.
Step 3: Is the Entity an Annex II Entity?
These are entities treated as exempt beneficial owners or deemed compliant FFIs. A summary of these can be found in Annexure E of the SARS Guide on the U.S. Foreign Account Tax Compliance Act. The FATCA regulations exempt many categories of FFIs from the requirement to register and report, including:
- Most governmental entities.
- Most non-profit organisations.
- Certain small, local financial institutions.
- Certain retirement entities.
How Does FATCA RFI Registration Work?
FFIs must register with the U.S. Internal Revenue Service (IRS), irrespective of whether they receive payments directly from U.S. sources. The following types of entities are NOT required to register:
- Non-Reporting FIs as described in Annex II of the FATCA IGA (note that a Sponsored Entity does not register, but may be registered by a Sponsoring Entity).
- Certified deemed-compliant FFIs in the Regulations.
- Active and passive Non-Financial Foreign Entities (excluding direct-reporting Non-Financial Foreign Entities in the Regulations).
An FFI that registers on the FATCA Registration Website, upon approval, will receive a Global Intermediary Identification Number (GIIN) from the IRS. As FATCA has been in place in South Africa since 2015, most South African FFIs have been registered with the IRS. The IRS publishes a list of registered and approved FFIs and their GIINs every month. The list of FFIs that have completed registration and obtained a global intermediary identification number (GIIN) is available using the FFI List Search and Download Tool.
How Does FATCA RFI Due Diligence and Reporting Work?
RFIs must undertake the AEOI due-diligence procedures to determine whether reportable accounts are present among the financial accounts an RFI maintains. The general due-diligence procedures that SA RFIs must comply with are described in Annex I of the FATCA IGA. Please note: an RFI must file a nil-return if it did not maintain any reportable accounts during the relevant reporting period. More comprehensive information by the IRS on FATCA is available below.
On how FATCA reporting must be done, see Third-Party Data webpage. More information can be found in the SARS Guide on the US Foreign Account Tax Compliance Act.
