The US Foreign Account Tax Compliance Act (FATCA) creates a new tax information reporting and withholding regime for payments made to certain foreign financial institutions and other ‘foreign’ persons. The definition of ‘foreign financial institution’ is very broad and includes funds. Failure to report could result in a 30% withholding tax being deducted from US source income and payments.

The implementation of FATCA is phased, with the first changes now due to take effect from July 1 2014, with certain withholding requirements also taking effect from July 1 2014.

Jersey is now in the process of negotiating an intergovernmental agreement with the United States, which will ensure that foreign financial institutions will:

• Not be required to enter into a foreign financial institution agreement, but instead will be directed by local legislation to comply with FATCA;
• Have reduced or no withholding tax and withholding obligations, and;
• Report on relevant accounts to their national tax authority, not direct to the US Internal Revenue Service.