The US Foreign Account Tax Compliance Act; A concern for Ghana?
As of July 15 2015, 55 financial institutions and banks in Ghana have registered themselves to comply with FATCA. So, chances are that if you tried to open a bank account in Ghana, the bank now requires you to fulfil some United States (U.S.) reporting obligations in addition to the usual bank account opening forms and requests. Why you probably ask?
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You’re in Ghana, what does the U.S. have to do with it?
In 2010, the U.S. passed the Hiring Incentives to Restore Employment Act of 2010. Buried within this Act was something called the Foreign Account Tax Compliance Act or “FATCA.” FATCA was formed in an effort by the U.S. Department of Treasury to gain transparency on the foreign holdings of U.S. individuals and corporations.
FATCA requires Foreign Financial Institutions (e.g., banks) to identify their U.S. account holders and report them to the U.S. Department of Treasury. In addition to this, U.S. taxpayers with foreign bank accounts are required to self-report their foreign holdings to the Financial Crimes Enforcement Network. Through self-reporting and the reporting of the Foreign Financial Institutions, the Department of Treasury should be able to reconcile the two and identify taxpayers who have failed to comply.
U.S. taxpayers that fail to self-report, face penalties of up to $10,000 per bank account!
Why did the U.S. pass all of this legislation?
U.S. citizens (individuals and corporations) are taxed on their worldwide income. Certain payments made by banks (e.g., interest) may be subject to U.S. withholding tax for U.S. taxpayers.
Why should foreign banks comply with the U.S. legislation?
As part of FATCA, Foreign Financial Institutions will automatically be subject to a 30 per cent withholding tax on payments made out of U.S. Financial Institutions ( in relation to any investments they have in the U.S) if they do not register and document their status with the Department of Treasury. As a result, banks around the world have been registering with the U.S. under the FATCA rules. Further, some jurisdictions have entered into Intergovernmental Agreements with the U.S. to implement FATCA.
In order for these Foreign Financial Institutions to accurately report to the U.S., they may require account holders to confirm whether or not they have U.S. tax obligations. If the bank’s customers do have a U.S. tax presence, certain payments may be subject to a U.S. withholding tax which will be applied and collected by the Foreign Financial Institution in Ghana on behalf of the U.S Government.
Although banks most commonly fit the definition of a Foreign Financial Institution under the FATCA rules, other types of businesses may also be registered as a Foreign Financial Institution. For example, some companies that are in the business of holding client monies, trustees, insurers, law firms and retirement plans may all have an obligation to be registered as a Foreign Financial Institution.
FATCA, in essence, is an attempt to focus on reporting by U.S. taxpayers about their overseas financial assets, and by Foreign Financial Institutions about financial assets held by U.S. taxpayers.
What does that mean for you when trying to open up a bank account in Ghana, or work with a Foreign Financial Institution in Ghana?
Your bank may give you a pile of forms that can include: W-8 BEN, W-8 BEN-E, W-8 IMY, W-8 EXP, W-8 ECI, or W-9, some of which are nearly 10 pages long.
Thankfully, you are not required (or even able) to complete all of these forms. In fact, only one form is often necessary in most cases. Each of the forms is for a specific type of entity – individuals, companies, and even foreign governments. Unfortunately, incorrectly completing one of these forms with the bank may result in certain payments being subject to a 30 per cent withholding tax that is sent to the U.S.
While the intention of the law was to ensure tax compliance for U.S. persons, it has unintentionally affected millions more.
Want to know more? Let’s talk.
You can contact me by sending an email to ayesha.a. [email protected] and copy in Daniel Cavazos ([email protected]) for a swift response.