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Implementation of the IGA signed between Cyprus and the US regarding FATCA

Implementation of the IGA signed between Cyprus and the US regarding FATCA

7 March 2016 Tax Law

On August 26th 2015, the Cypriot Minister of Finance has issued a Decree relating to the application of the FATCA (Foreign Account Tax Compliance Act) IGA (Intergovernmental Agreement) signed between Cyprus and the US on December 2nd 2014. The Decree, noted N. 281/2015, was published in the official Gazette of Cyprus on August 28th 2015 and entered into force on August 31st 2015.

FATCA’s ultimate aim is to combat tax evasion by US persons who hold financial assets outside the US. The IGA provides for the automatic exchange of information in relation to financial accounts held by U.S. persons in Cypriot financial institutions and the reciprocal.

Under the Decree, Cyprus Financial Institutions (FIs) shall establish and maintain the required due diligence procedures as defined in Annex I of the said IGA.

The decree specifies that the information required to be submitted by August 31st 2015 to the Cyprus Tax Department by the relevant FIs, and will be consolidated and communicated to the US Treasury by September 30th 2015.

Annex II of the IGA describes certain products that have been deemed to be of low risk (are not likely to be used for tax evasion purposes) and which are exempt from being treated as Financial Accounts.

The Decree also provides greater detail on which accounts are to be treated as ‘’non-financial’’ accounts:

  • Accounts maintained by recognised Provident Funds or any other EBO (Exempt Beneficial Owner)
  • Accounts maintained by Deemed Compliant FI
  • Accounts of deceased persons or accounts under the administration of an estate of a deceased, incapable or missing person
  • Any retirement products offered pursuant to the Insurance Services and Other Related Issues Law
  • Any other accounts falling under Annex II of the IGA

The Decree also clarifies the definition of Controlling Persons in the following manner:

  • For companies and partnerships: the ultimate beneficial owner owning more than 10% in the relevant entity, as defined by the Anti-Money Laundering (AML) legislation and the relevant Directives of the Central Bank
  • For non-incorporated entities such as Associations, Foundations, Clubs and similar entities the members of the board and the administrators of the accounts
  • For trusts: the settlor and the trustee

The Decree expressly states that FIs are allowed to follow the alternative procedures contained in Annex I of the IGA under which they may treat new accounts opened by entities between 1 July 2014 and 31 December 2014 as "pre-existing accounts" in performing their due diligence obligations.

It is stated that where a Financial Account held by a non-financial intermediary, and that Account is held on a pooled basis, the funds of underlying clients of the non-financial intermediary where:

  • the only person listed or identified on the financial account with the financial institution is the non-financial intermediary; and
  • the non-financial intermediary is not required to disclose or pass their underlying client or clients’ information to the Financial Institution for the purposes of AML/KYC or other regulatory requirements

then the FI is required to undertake the due diligence procedures in respect of the non-financial intermediary only.

If, on the other hand, the Financial Account maintained is ‘’a specified client account’’ whereby the FI is required to validate the identity of the account holder for the purposes of AML (Anti-Money Laundering) legislation, then the Cypriot Financial Account is required to perform all of the due diligence obligations, regarding the identification of the underlying account holder.

Furthermore, according to the decree, each financial institution within the scope of FATCA must retain for a period of six years all relevant documents used for preparing the information submitted to the Cyprus Tax Department. For the purposes of confirming whether the information submitted is correct and complete, during this period, the Cyprus Tax Department may request by any financial institution within the scope of FATCA to provide all the relevant documents used for the purposes of preparing its filing to the Cyprus Tax Department.

With regards to the reporting period of financial year 2014, the FATCA reporting deadline has been set to 31st August 2015. For future periods, the deadline has been set to 30th June 2015.

Any failure to meet the deadline is expected to incur penalties pursuant to the Assessment and Collection of Taxes Law, amounting to EUR 100. It is clarified, that such penalty will not apply for the first FATCA reporting period of 2015.