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Any entity making or receiving a payment of US source income must consider whether it is subject to FATCA before making further distributions.
Due to its breadth, FATCA impacts virtually all non-US entities, directly or indirectly, receiving most types of US source income, including gross proceeds from the sale or disposition of US property which can produce interest or dividends.
The rules are more focused on non-US entities receiving certain types of US source income and gross proceeds from the sale or disposition of US property which can produce US source interest or dividends.
US entities, both financial and non- financial, that make payments of most types of US source income to non-US persons will also be impacted as they may now be required to withhold a 30 per cent tax on that income paid to a non-US person under FATCA.
US source income refers to the income that arises from sources within the US The source of income is determined based on the type of income.
In case an account holder fails to provide required information to the financial institution, they will be identified as recalcitrant and a withholding of 30 per cent will be applied on US source income and certain payments due to the account holder.
uCaReport to the IRS annually, and withhold and pay over to the IRS 30 per cent of any payments of US source income, as well as gross proceeds from the sale of securities that generate US source income, made to
Banks will be obligated to undertake certain identification and due diligence procedures with respect to their accountholders; report annually to the IRS on its accountholders who are US persons or foreign entities with substantial US ownership; and withhold and pay over to the IRS 30 per cent of any payments of US source income, as well as gross proceeds from the sale of securities that generate US source income, made to (a) non-participating banks, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a US person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial US owners.
The Act will be implemented in January 2013 and any banks or institutions that do not comply will face a 30 per cent withholding tax on US source income, including dividends and interest paid on US securities, gross proceeds from the sale of US securities and substitute dividends.
The US Internal Revenue Service could impose a 30 per cent withholding tax on payments arising from US source income unless firms disclose information on their US investors.
KPMG is holding an event in Kuwait on 16 November to cover the key areas of the new US Foreign Account Tax Compliance Act (FATCA) and what it means to banks and life insurance companies that deal with US source income.
All banks and life insurance companies which have US source income or handle US source income on behalf of its customers will be affected since all US source income might be subject to 30 per cent US withholding tax if they are not FATCA compliant.