FATCA & CRS | Obligations for Reporting Financial Institutions for year 2022

Purpose

FATCA aims to prevent offshore tax evasion by certain U.S. Persons, including U.S. citizens and tax residents. It requires Foreign Financial Institutions to report information about their U.S. account holders. The goal is to increase transparency and prevent U.S. taxpayers from hiding assets and income abroad.

CRS is a global standard for the automatic exchange of financial account information between "participating jurisdictions". It is designed to allow tax authorities to identify and combat tax evasion and ensure that taxpayers are paying the right amount of tax in the right place.

Exemptions

Both FATCA and CRS have exemptions available, but their scope differs. FATCA exemptions are available for certain entities and financial accounts. These exemptions reduce the compliance burden on Financial Institutions and avoid unnecessary reporting.

In contrast, CRS exemptions are more limited and include certain types of financial accounts.

Mandatory reporting to Luxembourg tax administration

Reporting to Luxembourg tax administration is mandatory for both FATCA and CRS regulations.

Registration process for FATCA

Foreign Financial Institutions should generally register and obtain a Global Intermediary Identification Number ("GIIN") for FATCA purposes. 

No registration is required for CRS.

Zero reporting

Zero reporting is required for both FATCA and CRS. This means that even if a (Foreign) Financial Institution has no reportable accounts, it must still submit a report indicating that it has no reportable accounts.

Withholding taxes

FATCA requires Foreign Financial Institutions to withhold a percentage of certain payments made to non-compliant account holders. The withholding tax is designed to encourage compliance with the regulation and to ensure that FIs are reporting the required information accurately.

CRS, on the other hand, does not require withholding taxes.

Penalties for non-compliance

Significant sanctions apply for non-compliance with both FATCA and CRS.

• No (Zero) reporting: EUR 10,000 (lump Sum)
• Breach of obligations (mainly due diligence and compliance set up): Up to EUR 250,000 (“Main Penalty”)
• No or incomplete/late/inaccurate reporting: Main Penalty + 0.5% of the amounts that should have been reported.

If you need assistance with your FATCA and CRS reporting obligations, do not hesitate to reach out to us. We can help you to understand these regulations requirements, as well as to provide guidance on how to stay compliant and reduce the risk of penalties.