FATCA & NRI s
FATCA impacts only NRIS who are either citizens of US or residents of US.
Hence called hereinafter as USNRIS
SNAPSHOT OF PRESENTATION
Brief overview of FBAR / FATCA regulations
Brief overview of Amnesty schemes in US
Brief overview of Indian Statutory framework for FATCA
Impact of FATCA for US NRIs
Mitigatory measures to be taken by delinquent US NRIs
RESIDENTS OF US
Staying in US on employment / business visas for more than threshold period.
Even students with F1 visas could be residents in certain circumstances
Green card holders
COMPLIANCE OBLIGATIONS OF US NRIs
To report their global income to US IRS and pay tax
To report complete details of foreign bank accounts (FBAR)
To disclose full details of foreign financial assets (FATCA)
FBAR DISCLOSURE OBLIGATIONS
FBAR reporting in Treasury - Form TD F 90 - 22.1-separate form
To be filed before 30th June of next year with US Department of Treasury.
This is independent of filing US tax return
FBAR applies not only to ownership interest (whether present / future / contingent) but also to signing authority, whether sole or joint.
Even interest as nominee is covered.
Signing authority on behalf of companies / entities not covered.
Reporting required only if aggregate of balances in foreign bank and financial accounts exceeds US 10K.
If all incomes already reported and tax paid, but FBAR not complied, it can be quietly regularized (subject to penalties for past omissions)
If all incomes reported and existence of foreign bank accounts disclosed in the tax returns, then regularization of FBAR disclosure may not be an issue.
Minimum penalty for non compliance is US $ 10K- further penalty leviable for continuing offence with the maximum penalty capped at US $ 50K
FATCA DISCLOSURE OBLIGATIONS
FORM 8938
(EFFECTIVE FROM 01.01.2011)
To be filed with US IRS
To report ownership of foreign financial assets if their value exceeds threshold.
This is in addition to TD F 90-22.1
To be filed along with annual tax return
Need not be filed if no tax return is required to be filed
Reporting threshold
Unmarried- living in US- US $ 50K / 75K
Married- living in US- filing joint tax return –US $ 100K / 150 K
Unmarried – having permanent residence abroad – US $ 200K/ 300K
Married – filing joint tax return – having permanent residence abroad- US $ 400K / 600 K
Reporting obligations by foreign FIs (FFIs)
With respect to defaulting US NRIs, FFIs required to withhold 30% of payment of any US source income and pay to US.
FACTUAL REALITY
Most US NRIS have not complied
Reason is high US tax incidence
Indian income being quite low with minimal tax incidence
Non tax reasons
Even if they want to regularise FBAR / FATCA, they don’t since put off by high tax and penalty for past periods
OVDPs
Simplified Amnesty schemes for regularisation
FATCA STATUTORY FRAMEWORK IN INDIA
Inter - Governmental Agreement (IGA) between India and US dated 9.7.2015 to implement FATCA regulations in India.
Section 285BA of I.T. Act 1961 read with Section 295 for issue of notifications
Rules 114F to 114H and Form 61-B of I.T. Rules 1962 introduced through CBDT Notification No. 62/2015]
dated 7th August 2015
RBI Notification No. RBI / 2015-16 / 165-DBR. AML. BC.No. / 14.01.001/2015-16 dated 28.8.2015 addressed to all Banks in the country outlining the obligations as per the IT Rules.
AMFI Circular No.135/BP/62/2015-16 dated 18.9.2015 to all the Mutual Funds outlining uniform implementation of KYC requirements
SALIENT FEATURES OF RULES 114F TO 114H
Rule 114F – Definitions
Rule 114G – Lays down the obligations to maintain information and reporting
Rule 114H – Lays down the obligations to conduct due diligence review
Rule 114F – Important Definitions
Financial Account
o This is an exhaustive definition o Means accounts maintained by a financial
institution other than excluded accounts. o Such accounts include all deposits, DP accounts,
Equity or debt interest, insurance policies etc.,
Excluded Accounts
Retirement/pension accounts with annual contributions not exceeding US$ 50K
Senior Citizen Saving Scheme Account
Estate Accounts
Accounts maintained as per court orders/decrees
EMD/Advances accounts regarding transactions for purchase/sale/lease of properties
Financial Asset
Shares, stocks, bonds, debentures, futures and options, swaps, insurance policies, annuities, interest in partnership
Financial institutions
Banks, mutual funds, DPs, insurance companies, other financial entities and intermediaries
Non Reporting financial institutions
Government entities
International reporting organizations
Qualified credit card issuers
Financial institutions with local client base (not having place of business outside India and 98% of the accounts held by the residents)
Local banks (includes RRBs, UCBs, SCBs, DCCBs, LABs)
Financial institutions with low value accounts
PF/Gratuity funds
Passive income
Dividend, interest, rent, royalty, annuity, capital gains, insurance receipts etc.,
Reportable person
One or more specified US persons (i.e. citizens of US/residents of US)
Estate of decedent who was a citizen of US or resident of US
US Reportable account
Financial accounts maintained by a reporting financial institution and held by one or more specified US persons
Rule 114G – Information maintenance and reporting
This applies to all the reporting financial institutions
They have to maintain and report information on financial accounts of specified US persons
The information includes name, address, TIN, date and place of birth, account number, balance/value of investment at the end of the year (if the account is closed during the year, information as on the immediately preceding date)
Where an entity has one or more controlling persons who are reportable persons, to furnish aforesaid information with respect to each of them.
DPs/Custodial account keepers to furnish information re: gross interest/dividend/sale/redemption proceeds
If an account holder is resident of more than one country, TIN to be furnished for each country of residence.
If there are no information to be reported, NIL statement to be furnished
Every RFI shall communicate the name, designation and contact details of the designated Director and Principal Officer to the concerned reporting authority and obtain a registration number
The statement to be furnished in IT Form 61-B for every calendar year and it should be furnished for every calendar year on or before 31st May of next year. This has to be furnished online with the digital signature of the designated Director/Principal Officer.
The statement to be furnished to Director of Income Tax (Intelligence and Criminal Investigation Unit)
For calendar years 2014 and 2015, information required to be reported only with regard to US reportable accounts.
For calendar years 2016 onwards, information required to be reported for all reportable accounts
Rule 114-H – DDR Obligation
Obligations are spelt out separately for pre-existing accounts and new accounts
The accounts are also classified as individual accounts, entity accounts and NPFIs.
A reportable account is a financial account identified through DDR and held by a reportable person or a foreign entity controlled by specified US person or a passive non-financial entity with one or more controlling specified US persons
US reportable account is a financial account held by a US person or entity not based in US, but controlled by specified US person
Minimum threshold prescribed beyond which only, this obligation apples
For instance, in the case of pre-existing accounts, no review/reporting required if the balance as on 30.6.2014 does not exceed US$ 50K or cash value of insurance policies does not exceed US$ 250K
HOW FATCA WILL AFFECT US NRIs
For US NRIs already disclosing all their global incomes and assets to US Government , there is no impact.
Only those who have not disclosed any of their global assets / incomes or made only partial disclosure, there could be problems
HOW FATCA WILL IMPACT
By virtue of IT Rule 114 G, Indian Tax authorities collect information
Such information will be exchanged with US IRS
When US IRS find mismatch between disclosure already made and information obtained from India, it could lead to disastrous consequences by way of steep penalties, tax liabilities and interest liabilities on past incomes and prosecution also
The penalty will be for non filing of tax returns as well as late payment of taxes, non filing of FBAR / FATCA
HOW FATCA TRAP IS AVOIDED
To review global undisclosed assets and income
If the value of those assets less than reporting thresholds for FBAR / FATCA , then examine the likely US tax liability on incomes from those assets for past six years.
If the US tax liability with penalty under OVDP or regularization scheme is not much, to opt for the same.
Otherwise , to transfer out the assets to other family members (other than spouse and children) subject to other considerations.
Even interest in assets (interest in estate, trust, HUF) to be relinquished.
Later, those assets may be transferred to US through other schemes under FEMA.
Settlement by family members to US NRIs through trusts with benefits distribution deferred to future period.
Maintaining bank accounts with smaller banks
OTHER PRECAUTIONS RE : US NRIs
All tax free Indian incomes to be reported to US (Eg: Interest on FCNR / NRE deposits and tax free bonds, dividends, LTCG on shares)
Certain standard deductions under Indian tax laws not available in US (Eg: 30% deduction for property income). Instead, only the actual expenditure is deductible
Provisions re: Capital gains computation are different under US tax laws.
Especially, exemptions not available for re-investment made in India.
Even though tax credit available in US for Indian tax paid, to consider State tax payable in US to arrive at overall tax liability
To consider incidence of inheritance tax and its mitigatory measures.
While transferring out assets to other family members, to consider impact of gift tax as well as inheritance tax.
To be careful before obtaining citizenship for parents / parents in law
Surrendering US citizenship
NO. OF US CITIZENS GIVING UP CITIZENSHIP
2013 – 2999
2014 – 3415
Others are still retaining citizenship for different reasons which are :
For receiving pensions (whether employment oriented or social security) already vested
For getting medical treatment at a nominal cost whenever they want to visit US
For avoiding hassles of getting US VISA for visiting their near and dear living in US
For getting either free or concessional educational facilities for their children who are born in US and hence are naturalized US citizens
Due to prohibitive cost in the form of exit tax levied by US IRS on assets left behind in US
SIMPLIFIED AMNESTY SCHEME
For US NRIs living in US – 6 years income disclosure with 5% penalty on the maximum value of undisclosed assets at any time during the last six years