FATCA and CRS compliance

FATCA and CRS create reporting obligations for financial institutions worldwide. If your ABF structure includes offshore entities, or if you have non-US investors, you need compliance infrastructure from day one. Non-compliance triggers withholding penalties and regulatory issues.

FATCA (Foreign Account Tax Compliance Act)

What FATCA requires

FATCA is US law requiring foreign financial institutions to report information about US account holders to the IRS. The penalty for non-compliance is 30% withholding on US-source payments to the institution.

The basic framework:

Foreign financial institutions (FFIs) must register with the IRS
FFIs must identify and report US account holders
FFIs must withhold on payments to non-compliant entities
Non-compliant FFIs face 30% withholding on US-source payments they receive

Entity classification

Every entity in your structure needs FATCA classification:

Foreign Financial Institution (FFI):

Banks, custodians, investment funds, certain securitization vehicles
Most offshore ABF issuers are FFIs
Must register for GIIN and report US accounts

Non-Financial Foreign Entity (NFFE):

Operating companies, non-financial holding companies
Different (generally simpler) reporting rules
May still need to provide certification

Excepted entities:

Certain governmental entities
International organizations
Retirement funds meeting specific requirements
Other specified categories

For ABF structures:

Cayman or Ireland issuing vehicles: typically FFIs
Offshore blockers: may be FFIs depending on structure
Need classification analysis from tax counsel

GIIN registration

If your entity is an FFI, you must register for a Global Intermediary Identification Number (GIIN).

Process:

Determine entity classification
Complete IRS Form 8957 (FATCA Registration)
Submit through IRS online portal
Receive GIIN (typically within 2-4 weeks)
Designate responsible officer

Ongoing obligations:

Update registration if facts change
Responsible officer certifications
May need to certify compliance with FATCA requirements

What FFIs must do

Registered FFIs must:

Identify US accounts:

Due diligence on account holders
Collect W-8BEN-E or W-9 from investors
Determine US indicia (US address, phone, etc.)

Report US accounts:

Annual reporting to IRS (Form 8966)
Report account balances, interest, dividends, gross proceeds
Due March 31 for prior calendar year

Withhold on non-compliant payees:

30% withholding on US-source payments to non-compliant FFIs
Passthru payment rules (not yet fully effective) may extend to non-US-source

Documentation requirements

From US investors:

Form W-9 (Request for Taxpayer Identification Number)
Signed under penalties of perjury
Must include valid TIN

From non-US investors:

Form W-8BEN-E (for entities) or W-8BEN (for individuals)
Certifies non-US status
Certifies FATCA classification (for entities)
Includes treaty claims if applicable

Validity:

W-8s generally valid for 3 years
W-9s remain valid until facts change
Must have system to track expiration and re-collect

IGA vs. non-IGA jurisdictions

Many countries have signed Intergovernmental Agreements (IGAs) with the US that modify FATCA obligations:

Model 1 IGA (most common):

FFIs report to local tax authority
Local authority exchanges information with IRS
Simplifies compliance for FFIs
Cayman Islands, Ireland, and most major jurisdictions are Model 1

Model 2 IGA:

FFIs report directly to IRS
Local authority allows information sharing
Switzerland, Japan use this model

Non-IGA jurisdictions:

FFIs must comply directly with full FATCA requirements
More burdensome
Few remaining non-IGA jurisdictions

Withholding consequences

For compliant entities:

No FATCA withholding on payments received
Normal tax treatment applies

For non-compliant entities:

30% withholding on US-source withholdable payments
Includes interest, dividends, gross proceeds from securities
Can be devastating to returns

Cure:

Register, become compliant
May be able to recover excess withholding through refund

CRS (Common Reporting Standard)

What CRS requires

CRS is the OECD’s global standard for automatic exchange of financial account information. Over 100 jurisdictions participate, exchanging information about tax residents’ accounts.

How it works:

Financial institutions identify account holders’ tax residence
Report account information to local tax authority
Local authority exchanges with account holder’s home country
Creates transparency for tax authorities worldwide

CRS-participating jurisdictions

Major jurisdictions include:

All EU member states
Cayman Islands
British Virgin Islands
Jersey, Guernsey, Isle of Man
Switzerland
Singapore, Hong Kong
Australia, New Zealand
Most Caribbean financial centers

Notable non-participant: United States (relies on FATCA instead)

Due diligence requirements

Financial institutions must:

For new accounts:

Collect self-certification of tax residence
Cannot rely solely on address
Must determine all jurisdictions of tax residence

For existing accounts:

Review existing documentation
Identify indicia of non-resident tax status
Follow up on inconsistent information

Self-certification:

Required from all account holders
Must include jurisdiction(s) of tax residence
Must include taxpayer ID number for each jurisdiction

Reporting obligations

Financial institutions report to their local tax authority:

Account holder name, address, TIN, date of birth
Account number
Name and identifying number of reporting institution
Account balance at year-end
Total interest, dividends, gross proceeds, other income

Timeline:

Calendar year reporting
Due dates vary by jurisdiction (typically early in following year)
Local authority then exchanges with treaty partners

CRS vs. FATCA

Key differences:

Aspect	FATCA	CRS
Focus	US persons	All non-resident account holders
Registry	GIIN with IRS	No central registry
Reporting	To IRS (or local authority under IGA)	To local authority
Withholding penalty	30% withholding	Varies by jurisdiction
Documentation	W-8/W-9	Self-certification

Implications:

Must comply with both if in CRS jurisdiction with US account holders
Different forms and processes
Different due dates
Cannot use W-8/W-9 alone for CRS compliance

Practical implementation

Building compliance infrastructure

At deal setup:

Classify all entities (FFI/NFFE, CRS financial institution)
Register FFIs for GIIN
Create investor documentation requirements
Build tracking system for documentation validity

For subscription process:

Include FATCA/CRS questions in subscription documents
Require W-8/W-9 (for FATCA) at subscription
Require CRS self-certification at subscription
Don’t accept subscription without complete documentation

Ongoing:

Track documentation expiration
Re-collect expired W-8s before 3-year anniversary
Annual FATCA reporting (Form 8966 or IGA equivalent)
Annual CRS reporting to local authority

Subscription document language

Include in your subscription agreement:

FATCA section:

Investor representation of FATCA status
Agreement to provide W-8/W-9
Agreement to update if facts change
Consent to reporting

CRS section:

Investor representation of tax residence
Agreement to provide self-certification
Agreement to update if residence changes
Consent to reporting

Documentation management

Track:

Document type (W-8BEN, W-8BEN-E, W-9, CRS self-certification)
Date signed
Expiration date
Tax residence jurisdictions
TIN numbers

Refresh:

W-8s expire 3 years from signing
CRS self-certifications: update when circumstances change
Automated reminders to investors
Don’t make payments without valid documentation

Reporting timeline

FATCA (Model 1 IGA):

Calendar year reporting
Report to local authority by March 31 (varies by jurisdiction)
Local authority forwards to IRS by September 30

CRS:

Calendar year reporting
Due dates vary by jurisdiction
Typically February-May of following year

Working with service providers

Most offshore administrators handle FATCA/CRS compliance:

Due diligence on new investors
Documentation collection and tracking
Annual reporting preparation
Relationship with local tax authority

Budget for this in administrative costs. Don’t try to build in-house unless you have significant scale.

Common mistakes

Mistake 1: ignoring until after closing

Deal closes without FATCA/CRS infrastructure. Post-close scramble to collect documentation. Non-compliant for first reporting period.

Fix: Build FATCA/CRS requirements into subscription documents from day one.

Mistake 2: relying only on W-8 for CRS

Issuer collects W-8BEN-E and assumes CRS is covered. W-8 doesn’t include all CRS-required information. Reporting is incomplete.

Fix: Collect CRS self-certification separately from FATCA documentation.

Mistake 3: not tracking expiration

W-8BEN-E collected at subscription. Three years pass. Documentation expires. Issuer doesn’t notice. Payments made to investors with expired documentation.

Fix: Implement tracking system with automatic expiration alerts.

Mistake 4: wrong FATCA classification

Entity classified as NFFE when it should be FFI. Doesn’t register for GIIN. Faces 30% withholding on US-source payments.

Fix: Get proper FATCA classification analysis from tax counsel.

Compliance checklist

Before closing

Classify all entities under FATCA
Register FFIs for GIIN
Determine CRS obligations by jurisdiction
Include FATCA/CRS language in subscription documents
Create documentation collection process

At subscription

Collect W-8/W-9 from all investors
Collect CRS self-certification from all investors
Verify completeness of documentation
Enter data into tracking system
Set expiration reminders

Ongoing

Track documentation validity
Re-collect before expiration
Prepare annual FATCA reporting
Prepare annual CRS reporting
Update for any investor changes

When investors change

New investor: full documentation
Transfer: documentation from transferee
Redemption: final reporting
Change in circumstances: updated self-certification

Resources and guidance

IRS FATCA resources:

IRS FATCA Registration System (for GIIN)
IRS Form 8966 instructions
Treasury FFI agreement terms

OECD CRS resources:

CRS Implementation Handbook
Model CRS self-certification forms
Jurisdiction-specific guidance

Local authority guidance:

Each CRS jurisdiction publishes local guidance
Requirements vary by jurisdiction
Work with local counsel for specifics