Date March 13, 2019
Understanding FATCA and CRS Compliance
FATCA and CRS have similar characteristics on the surface, but there are underlying differences that make universal compliance complex and challenging.
FATCA
Introduced the Internal Revenue Service (IRS), FATCA prevents US taxpayers who hold financial assets in non-US financial institutions and offshore accounts from avoiding taxation on their income and assets. Foreign financial institutions agree to report on these US account holders or face 30% withholding on all US income.
CRS
CRS is a global reporting standard for the automatic exchange of information (AEOI) set forth the Organization for Economic Cooperation and Development (OECD). More than 96 countries share information on residents’ assets and incomes in accordance with reporting standards. CRS is more extensive than FATCA, and thus requires a unified, cross-team effort to ensure readiness and compliance. OECD
From banks to brokerage accounts, asking the country where you are tax resident is now a common question. This follows years of banks asking, “are you a US citizen or permanent resident?” to comply with FATCA, and it’s all because of one regulation: The Common Reporting Standard, or CRS.
I’ll go into CRS in greater detail in another article, but essentially CRS exists to facilitate automatic information sharing about foreign financial accounts between member countries.
CRS is the latest solution to cracking down on undisclosed offshore bank accounts allowing entire countries to mandate their banks to share data into the pool of information which then gets fed to every other country to keep tabs on its citizens.
So far, more than 100 countries – including most tax havens (e.g. Cayman Island, Seychelles, BVI, etc.) and offshore banking havens – have signed up, and most of those are already exchanging data.
Insurance wrapper allows the liquid or illiquid assets or portfolio have one more layer to protect the assets, technically changing the Ultimate Beneficial Owner (UBO).