No FATCA exemption for Caymanians

    top lede

    Caymanians who hold US passports will be subject to having their bank accounts and investment information reported to American tax authorities by Cayman banks and investment entities when the US Foreign Account Tax Compliance Act takes effect in 2013.

    Although there is hope some of the details of the implementation will change – as they have already since FATCA was enacted in March 2010 – president of the Cayman Bankers’ Association Gonzalo Jalles said the banks will have no choice but to comply and anyone with a US passport will be affected.

    “This is coming,” he said. “There’s no way for a carve-out for Caymanians with US passports.”

    US citizens, no matter where they live and work, are generally required to file annual tax returns. In addition, US citizens are required to file an annual report detailing foreign financial accounts – including bank accounts – in which they have a beneficial interest.

    However, US citizens living abroad are generally exempted from paying taxes on the first US$90,000 they earn, excluding 
investment income.

    FATCA will require foreign financial institutions to report directly to the US Internal Revenue Service certain information about financial accounts that exceed US$50,000 held by those deemed to be “US persons”. Foreign financial institutions that fail to do this face paying a 30 per cent withholding tax on payments made from US financial institutions to foreign financial institutions after 1 January, 2013. Non-US banks, trusts and investment funds are all included in the definition of foreign financial institution.

    Two of the basic criteria for determining who is a US person for the purposes of the law is whether someone was born in the United States and holds a US passport.

    “Anything that makes us suspect someone is a US person means we have to report,” Mr. Jalles said, adding that it won’t help for Caymanians with US passports to just open their financial accounts with a Cayman passport.

    “All passports say where you were born,” he said. “If you were born in the United States, we’re going to assume you have a US passport.”

    In addition to being born in the US or holding a US passport, other things that will require financial institutions to report on accounts include holding a US green card; having a US residence address or correspondence address; having standing instructions for transferring funds to an account in the United States; receiving regular directions from a US address; having an “in care of” address or a “hold mail” address as the sole address in respect to the client; or the existence of a power of attorney or signatory on the account granted to someone with a US address.

    With the penalty for noncompliance so high, Mr. Jalles said Cayman banks wouldn’t be taking any chances.

    “Banks are going to decide to error on the side of providing too much information rather than too little,” he said, noting that many US citizens will have reported the information already on their tax returns or foreign financial account declaration.

    “If you’ve been filing, you’re fine,” Mr. Jalles said. “You have nothing to worry about.”

    Turning away US clients?

    Because of high costs of implementation and maintenance of FATCA, some Swiss banks have decided to close the accounts of those deemed to be US persons.

    Mr. Jalles, who is also the CEO of HSBC Cayman, said he didn’t think that would happen in Cayman.

    “For [HSBC], it’s not an option,” he said. “Really, for any international bank, it is not an option. Anyone who has a bank in the US has to comply.”

    To avoid paying the withholding tax on transfers from the US, foreign financial institutions have to sign an agreement with the US tax authorities and implement certain procedures whether they have any US persons as customers or not. In addition, foreign financial institutions that have investments in the US also have to sign the agreement with the US tax authorities or face the withholding tax.

    “You can decide to stop serving US customers, but you’re not going to save much [in costs],” Mr. Jalles said, adding that the Swiss banks that aren’t going to comply with FATCA are generally small and only deal in Swiss Francs.

    Because Cayman’s commercial banks have to deal in US dollars – the clearing of CI dollar cheques is done in US dollars and CI dollar cash is purchased from the Cayman Islands Monetary Authority with US dollars – Mr. Jalles doesn’t think banks here could do what some of the Swiss banks are doing.

    “I don’t see how any commercial bank here can do that,” he said, adding that it was maybe possible for a Class B bank to not sign on to FATCA.

    Big burden

    Brett Hill, president and CEO at Fidelity Bank (Cayman) Limited, said implementing and then maintaining the necessary administrative systems for FATCA would be “hugely expensive” and onerous on banks.

    “We will basically all be working for the US [tax authorities],” he said. “It’s almost as if the onus is on the banks to prove a customer is not a US person.”

    Mr. Hill said there were approximately 250,000 foreign financial institutions and the US government was hoping to raise $10 billion a year in additional tax revenues with FATCA.

    “Maybe the 250,000 FFIs should just pay $40,000 each and be done with it,” he said. “It would cost us less.”

    The cost of FATCA is not something a bank can play down, Mr. Jalles said.

    “It will be costly, in [HSBC’s] case massive, but implemented globally, so the cost locally will be very manageable,” he said.

    Stuart Dack, president and CEO of Cayman National Corporation, said several similar measures in the past – like the retrospective know-your-customer requirements, the European Union Savings Tax Directive and the recent dormant account exercise – will make FATCA easier to handle for Cayman banks than for some other foreign financial institutions.

    “I actually think we’re better placed than others, having been through a number of these initiatives already,” he said, noting however, that FACTA would indeed cost money.

    “This kind of exercise is a cost of doing business in the world we live in,” he said. “It’s going to cost money. I

    t’s difficult to quantify at this point, but I’m not expecting it to cost millions of dollars.”

    Changes coming?

    Mr. Dack noted that the FATCA guidance issued earlier this month already differs from earlier guidance.

    He believes that various representations being made will help shape the final provisions of FATCA into something that is workable.

    “I think over the next few months there will be some shifting,” he said, “and we’ll end up with something that is sensible.”

    Although he believes people should be aware of the measures, they need to realise there will likely be significant changes.

    “It’s very important not to knee-jerk at this stage, but it needs careful consideration,” he said. “We don’t want to send a panic around. Absorb the information that is available now, but be conscious that the definitive way this will be implemented hasn’t been resolved.”

    Mr. Jalles said the Bankers Association can provide feedback, just as the jurisdiction could do as a whole.

    “Just because our voice is little, doesn’t mean we shouldn’t [make representations to the US government],” he said. “We should do it and we will.”

    Mr. Hill said that part of the issue was caused because the United States was the only country that taxed its citizens no matter where they lived, something some people would like to see changed.

    “We still have a vain hope that someone is going to stop this madness,” he said.

    Top 1 story

    If you hold one of these, you could be liable for US taxes. – Photo: File


    1. Welcome to ObamaCare! Tax, tax, tax so we can help people on Welfare State to become more lazy by relying on government for everything. And if you don’t pay us, we will fine you and punish you for it. Sounds to me more like theft! If I make my monies outside the United States, why should my personal banking information be pried into – it none of their business! Soon you will hear that if you have a U.S. passport, they will be taxing you for the properties you have bought here. Just rediculous I say!

    2. Guys,

      His recent trip to Washington the Capital. What business does he have in the US all too often? He’s selling you out to the highest bidder! Watch my lips, there’s something the US promised him and its an exchange, this man does not do anything for nothing he’s too licky licky.

    3. In reply to Bodden, Americans are taxed on their world-wide income. If you are Caymanian and have a US passport, then you are American and are required to pay tax on your world wide income. It sounds to me like you want the advantages of a US passport but you don’t want the responsiblities. Why should I pay tax and you not? If you don’t like it, give up your passport.

    4. get rid of your US passport and go get a Canadian one… everyone likes the Canadians…. you don’t have to pay taxes if you are no-resident!!!!

      Beauty eh!!!

    5. The IRS should at the very least chip in something for the cost of implementing this tax collection initiative.. To bully a small country like Cayman with a threat such is this is not something I would expect from America. What I would expect from Americans here is to do their civic duty in the first place and pay their taxes.. If Cayman has a storm everyone runs home to the USA, one cannot expect to get in the bunker if you don’t pay your fair share to keep the bunker strong.. Freedom is never free.

    6. Make no mistake, this is the IRS implementation of US taxation on the Cayman Islands, period…

      How ?


      1. Many wealthy Caymanian (born) business people and families hold US passports or were born in the USA, have family and traceable addresses in the USA.

      2. Many of these same Caymanian fronting partners (51% Caymanian ownership) in a foreign-invested business are partners with US citizens.

      3. All Cayman currency dealings in Caymanian businesses are eventually converted into US currency by the major Cayman and international banks for 90% of their foreign exchange transactions; only about 10% of their transactions are done in CI currency and only for local business.

      4. All imports from the USA into the Cayman Islands must be paid in US currency.

      The banks will now act as reporting agencies to the IRS to save themselves the 30% withholding tax penalty.

    7. @ Gardener – You think I am really that scared for the U.S. citizenship! Wait until 2012 when the U.S. Elections kick off and Obama loses to the GOP. For them – it is all about tax! How much money they can squeeze out of people!

    8. This is all about Votes, in the US there are more voters on welfare and looking for Handouts than there are Hard Working people. So the Government caters to them to get the vote at the next election. In the US you are penalized for working hard to get ahead, while others who sit on their butts are rewarded and given handouts.

      Obama’s Robin Hood attitude will be his undoing in the long run, Robbing from the rice to give to the poor is not at all fair, nor is taxing people with higher incomes at a higher level. A person that make 100 grand a year pays 10 time more taxes than a person that makes 10 grand a year so they are already paying more taxes. So why should they have a higher rate. Everyone should pay the same tax rate on their income and people on Welfare need to start contributing something to society as well why not tax welfare when Unemployment is taxed which is something you actually have to earn. Make these people work for their money, doing this may even teach them skills that will end up with them getting a job. It’s easy to sit on your butt and get free money, how does this encourage anyone to work for their food, if it’s just given to them for nothing. It should be Workfare not WelfareProvide Government jobs, not Government Cheese.

    9. In reply to Bodden – these are not new taxes being imposed by Obama. Americans were required to pay these taxes under both Bushes, Clinton, Reagan, etc. All the American government is doing is making it harder for people to evade what they have been required to pay for decades.

      To firefly – how paranoid can you get. The American government isn’t targeting Cayman. These rules apply to Americans living and/or investing in every country in the world. You are only hearing about how it is affecting those in Cayman because you live in Cayman.

    10. Gardner,

      Its Firery, btw…

      I’ve never once said that the Cayman Islands is being targeted specifically; you’ve read that into my statements yourself.

      This is nothing new that all US citizens and other people with legitimate ties to the US are liable to file tax returns and, in some cases, pay taxes to the IRS regardless of where they reside but…

      This is the first time in history that the entire international banking system is being held responsible for collecting data on who those people are and reporting them to the IRS, upon pain of penalty.

      All I’ve done is show how this will affect the entire Cayman Islands economy on a massive scale.

    Comments are closed.