Cayman Islands FATCA (U.S.- U.K.) and Common Reporting Standard (CRS) Deadlines in 2016

The Department of International Tax Cooperation has issued a further advisory confirming a final extension of both the notification and the reporting deadline in respect of US FATCA and UK FATCA (also known as CDOT) to Wednesday,  August 10, 2016.

Cayman Islands investment entities are currently subject to three separate regimes relating to financial account information reporting: U.S. FATCA, U.K. FATCA and the OECD (CRS). The U.K. government recently indicated it will changeover from the U.K. Intergovernmental Agreement to CRS on January 1, 2016 removing the need for U.K. FATCA Reporting in addition to CRS. Although these regimes are similar, each has its own unique set of rules. Accordingly, investment advisers who manage Cayman Islands investment entities should be aware of the separate compliance obligations under U.S. FATCA, U.K. FATCA and CRS. The following summary outlines the 2016 requirements.

Summary of 2016 FATCA/CRS Compliance Deadlines

1. Notification (U.S. and U.K. FATCA)

DEADLINE: June 10, 2016 (formerly April 30, 2016)

In general, every Cayman Islands investment entity that is a “Reporting Financial Institution” under U.S. FATCA and/or U.K. FATCA (or its “sponsoring entity,” if applicable) is required to notify the Cayman Islands Tax Information Authority (TIA) of its first annual report under U.S. FATCA and U.K. FATCA. Through this process, each Cayman Islands investment entity will also provide the TIA with contact information for the natural person responsible for corresponding with the TIA about the investment entity’s FATCA compliance.

Cayman Islands investment entities that filed a 2014 U.S. FATCA Report (in 2015) were required to submit a notification to the TIA in 2015. If such entities are filing a 2015 U.S. FATCA Report, but are not filing a 2014-15 U.K. FATCA Report, no further notification must be submitted in 2016; the notification submitted in 2015 will satisfy the requirement.

If, however, a Cayman Islands investment entity that submitted a notification of US FATCA reporting in 2015 intends to file a 2014-15 U.K. FATCA Report, such entity must submit a separate notification in 2016 to satisfy its obligation under U.K. FATCA.

Cayman Islands investment entities that will file their first FATCA reports in 2016 must notify the TIA and indicate whether the report will be under U.S. FATCA, U.K. FATCA, or both.

If a Cayman Islands investment entity has no “Reportable Accounts,” it may, but is not required to, file a so-called “nil report.” 

The Cayman Islands has also recently revised its self-certification form. The self certification form now includes CRS information. Click here to access the entity self-certification form. Click here to access the individual self-certification form.

2. Due Diligence (U.S. and U.K. FATCA)

In general, all financial accounts (including interests in investment entities) that were maintained by Cayman Islands investment entities as of June 30, 2014 have been classified as “pre-existing accounts” for U.S. and U.K. FATCA purposes. The due diligence requirements with respect to these pre-existing accounts has been phased-in since 2014. To the extent a Cayman Islands investment entity has not completed its due diligence with respect to a pre-existing account, it generally must do so by June 30, 2016.

The only remaining exceptions to the due diligence requirement include: 

• Pre-existing individual accounts whose value on June 30, 2014 was $50,000 and did not exceed $1 million on December 31, 2015; and
• Pre-existing entity accounts whose value on June 30, 2014 was $250,000 and did not exceed $1 million on December 31, 2015.

Typically, due diligence is undertaken by obtaining IRS Forms W-8 or W-9 from account holders (for U.S. FATCA purposes) and self-certifications of tax residency (for U.K. FATCA purposes), and then comparing such forms and self-certifications with other information obtained from account holders during the on-boarding process. 

3. Reporting (U.S. and U.K. FATCA)

DEADLINE: July 8, 2016 (formerly May 31, 2016)

Cayman Islands investment entities that had “Reportable Accounts” under U.S. FATCA (in 2015) and/or U.K. FATCA (in 2014 and/or 2015) must file reports with the TIA by July 8, 2016.

4.Due Diligence (CRS)

DEADLINE: December 31, 2016

In general, all financial accounts that were maintained by Cayman Islands investment entities as of December 31, 2015 are “pre-existing accounts” for CRS purposes. Due diligence under CRS (which includes obtaining self-certifications of tax residency from account holders) is being phased-in during 2016 and 2017. Due diligence for the following types of pre-existing accounts must be completed by December 31, 2016: 

• Pre-existing individual accounts whose value exceeded $1 million on December 31, 2015; and
• Pre-existing entity accounts whose value exceeded $250,000 on December 31, 2015.

Due diligence on lower-value pre-existing accounts will be required by later deadlines. 

The CRS Regulations treat certain investment entities located outside a “Participating Jurisdiction” to be a “passive non-financial entity” (PNFE). Where an account is held by a PNFE, the investment fund will be required to identify the tax residency of any “controlling person” of that PNFE to determine the scope of any reporting obligations under the CRS. Importantly, due to the U.S. not being a “Participating Jurisdiction,” many U.S.-domiciled feeder funds are likely to be PNFEs. It is not clear how the Cayman Islands is going to handle this issue. Ideally, since the feeder fund will have obtained W-8 or W-9s from all investors it should simply be allowed to send certification that it has identified all investors.