February 23 2015
Many trusts may require registration with the United States’ IRS under the FATCA regime
The US Foreign Account Tax Compliance Act (FATCA) has been in force in New Zealand since June 2014. FATCA is a complex piece of legislation established to prevent tax evasion by requiring foreign financial institutions to register and report to the IRS in relation to any accounts held on behalf of US citizens.
All New Zealand entities considered to be ‘foreign financial institutions’ under the FATCA regime should have been registered on the IRS website by 31 December 2014.
Failing to register may result in significant penalties and therefore it’s important that any financial institution registers as soon as possible.
Does this affect your trust?
Many New Zealand trusts may be considered ‘foreign financial institutions’ under FATCA even if they don’t have any US beneficiaries or trustees, or US assets associated with the trust. Trusts which could be considered ‘financial institutions’ are those with a corporate trustee holding income earning assets and those which have engaged a financial institution to manage trust assets.
Once registered with the IRS, a trust is compliant with the FATCA registration regime. If the trust doesn’t hold any US assets or has no US beneficiaries or trustees, it’s likely that would be the end of the trust’s obligations to the IRS.
However, should the trust have US beneficiaries or US assets, specific accounts need to be reported to the New Zealand IRD at the end of reporting periods.
Trustee companies in a useful position
Conveniently, a trustee company may register with the IRS as a single entity itself and then as a sponsoring entity. Once a trustee company has been registered as a sponsoring entity and obtained a GIIN (Global Intermediary Identification Number), each trust of which the trustee company is a trustee will automatically become a ‘Trustee Documented Trust’ and will not need to register with the IRS individually.
The effect is that trusts with a corporate trustee that is registered as a sponsoring entity with the IRS are in a safer position under the FATCA regime than trusts without a corporate trustee. The registration requirement is already met and it’s then only the reporting requirements that require consideration.
It’s important that any corporate trustee considers registering with the IRS as a foreign financial institution as a sponsoring entity as soon as possible.
Once registered, an exercise as to whether any reporting needs to be made to New Zealand’s IRD would need to be done, particularly for any trust holding US assets or with US beneficiaries or trustees.
It’s important that you look into whether your trust should be registered under the FATCA regime – sooner rather than later to avoid any penalties. Please don’t hesitate to contact us to discuss what steps you should take