Enacted in 2010, the US Foreign Account Tax Compliance Act (FATCA) seeks to prevent tax abuses by US persons living or operating outside of the US. FATCA imposes a 30% withholding tax on payments of US source income made to non-US financial institutions, unless they enter into an agreement with the US Internal Revenue Service (IRS) and agree to disclose information about their US account holders. As an alternative to individual entities entering into agreements with the IRS, and to address any possible conflicts with local laws, the government of a country may enter into an Intergovernmental Agreement (IGA) with the US Department of Treasury. The IGA allows affected institutions to report directly to their local tax authority and provides guidelines in respect of the implementation of FATCA in that specific country.

The Intergovernmental Agreement between South Africa and the US was signed on 9 June 2014.

Reporting Financial Institutions are obliged to commence reporting under FATCA from 01 July 2014.

According to this IGA, affected South African financial institutions are not subject to the 30% withholding tax, and are deemed to comply with FATCA. They do, however, have a reporting obligation, which includes identifying US reportable accounts annually to SARS, providing SARS with the names of each non-participating financial institution to which it has made payments, and the amount of such payments.

The IGA clarifies the impact of FATCA on South African financial institutions:

  • Reporting Financial Institutions’ are custodial institutions that hold financial assets for the account of others including depository institutions such as banks, investment entities, and insurance companies, that have reporting obligations under FATCA;
  • The due diligence obligations for identifying and reporting on US reportable accounts, are set out in Annex 1 to the IGA (only accounts with an account balance of US$50 000 or more as at 1 July 2014, need to be reported on); and
  • A list of entities which are exempt and do not have any reporting duties, are set out in Annex 2, including the government of South Africa, the South African Reserve Bank, and retirement funds (subject to prescribed criteria).

Reporting Financial Institutions are obliged to commence reporting under FATCA from 01 July 2014.