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FATCA stands for the Foreign Account Tax Compliance Act.

FATCA is part of the U.S. HIRE Act, signed into law on March 18th, 2010 by President Obama. Virtually every financial institution in the world is affected by FATCA requirements.

FATCA Update in Canada

Canada's Department of Finance announced on February 5, 2014 that Canada and the United States have signed an Inter-Governmental Agreement (IGA) to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA). Canada has since implemented legislative changes to require Canadian financial institutions to become FATCA compliant and this requirement is now part of Canadian tax law.

For more information:

What is FATCA

FATCA rationale

The objective of this legislation is to identify U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts -- either directly or indirectly through certain foreign entities such as corporations or trusts.

Who or what is a U.S. person for U.S. tax purposes?

  • A citizen of the U.S., including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship;
  • A lawful resident of the U.S., including a U.S. green card holder;
  • A person residing in the U.S.
  • Certain persons who spend a significant number of days in the U.S. each year. (For example, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Similar relief is provided under many other treaties with the U.S.)
  • U.S. corporations, U.S. estates and U.S. trusts.

FATCA fundamentals and international tax compliance

In its original form, FATCA would have required foreign (non-U.S.) financial institutions (FFIs) to either:

  • enter into agreements with the IRS and report information about financial accounts held by U.S. taxpayers -- or held by foreign entities in which U.S. taxpayers hold an ownership interest -- directly to the IRS, or
  • face punitive U.S. withholding tax on U.S.-source payments.

To address privacy and regulatory concerns related to FATCA, many countries are negotiating intergovernmental agreements (IGAs) with the U.S. These IGA "partner countries" will enter into one of two standard model agreements, and implement laws to require financial institutions to collect and report information required by FATCA.

FFIs will comply with FATCA in one of three ways:

  • In countries with a Model 1 IGA, FFIs will comply under local legislation and report to their local tax authority; in turn, the local tax authority will exchange information with the Internal Revenue Service (IRS);
  • In countries with a Model 2 IGA, FFIs will comply with local legislation to enter into agreements with, and report directly to, the IRS;
  • In countries without an IGA, FFIs will enter into agreements with, and report directly to the IRS. (A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.).

On January 17th, 2013, the U.S. Treasury and Internal Revenue Service released final FATCA regulations. These define the detailed requirements for U.S. financial institutions, and for foreign (non-U.S.) financial institutions that will enter into agreements directly with the IRS. Foreign financial institutions in countries entering into Model 1 IGAs with the U.S. will still require their local governments to release local legislation and guidance before they can fully finalize their requirements.

U.S. financial institutions are automatically required to comply with FATCA.

Note: the term U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. owners -- regardless of the currency of the account itself. FATCA applies to all types of financial accounts, including insurance, investments and business accounts.

RBC has analyzed the final regulations and IGAs in jurisdictions in which RBC operates to ensure compliance in these jurisdictions. RBC will continue to update its FATCA information for clients as final details are known.

RBC’s Approach

Context

RBC understands the objectives of FATCA and the U.S. government's concerns about tax evasion.

Action

RBC has worked with industry associations, governments and regulators to carefully analyze and make recommendations related to FATCA requirements.

Client Focus

RBC earns the right to be our clients' first choice. We take our clients' privacy seriously and comply with privacy rules in all jurisdictions. Our goal is to minimize the impact of these new rules on client service.

The Road Ahead

Phase 1 – 2014

The first phase includes new account opening procedures to identify U.S. Reportable Accounts. These procedures have been in place starting July 1st, 2014 for all U.S. and non-U.S. financial institutions.

Phase 2 – 2014–2016

The second phase includes the identification and reporting of certain pre-existing U.S. Reportable Accounts opened prior to July 1st, 2014. This phase is expected to be completed between 2014 and 2016.

FAQs

General FAQs

FATCA is the Foreign Account Tax Compliance Act. Its objective is to identify U.S. persons who may evade U.S. taxes by investing through foreign (non-U.S.) accounts -- either directly or indirectly through foreign entities such as corporations and trusts. FATCA is part of the HIRE Act, signed into law on March 18th, 2010 by President Obama. Final FATCA regulations were released in January 2013.

Financial institutions are required to identify and report, on an annual basis, financial accounts held by U.S. taxpayers, or held by certain foreign entities in which U.S. taxpayers hold a substantial interest (known as U.S. Reportable Accounts).

Foreign Financial Institutions (FFIs) will comply with FATCA in one of three ways:

  • In countries with a Model 1 IGA, FFIs will comply under local legislation and report to their local tax authorities; in turn, the local tax authority will exchange information with the IRS;
  • In countries with a Model 2 IGA, FFIs will comply with local legislation to enter into agreements with, and report directly to, the IRS;
  • In countries without an IGA, FFIs will enter into agreements with, and report directly to the IRS. A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.

Intergovernmental Agreements (IGAs): RBC continues to monitor draft and signed IGAs. Under one of two IGA models, information about U.S. Reportable Accounts is provided to the local tax authority (e.g. Canada Revenue Agency) rather than directly to the IRS. Under the second model, FFIs report directly to the IRS.

Virtually every financial institution in the world will be affected, unless qualifying for an exemption.

  • In countries with intergovernmental agreements (IGAs), FFIs will be required under local legislation to comply.
  • In non-IGA countries, a 30% U.S. withholding tax will be deducted from U.S.-source payments (and potentially non-U.S. source payments in future) received by foreign financial institutions (FFIs) if they do not enter into FFI Agreements with the IRS. This includes payments received by FFIs either on their own account or on account of their clients.

The first phase includes new account opening procedures to identify U.S. Reportable Accounts. These procedures were required to be in place July 1st, 2014 for all U.S. and non-U.S. financial institutions.

The second phase includes the identification and reporting of certain pre-existing U.S. Reportable Accounts opened prior to July 1st, 2014. This phase will be completed between 2014 and 2016.

Royal Bank of Canada (RBC) group, its affiliated legal entities and branches are compliant with FATCA requirements globally effective July 1, 2014.

We understand the objectives of the legislation and the U.S. government's concerns about tax evasion. We are in compliance with FATCA and monitoring the overall impact of this legislation and IGAs, particularly with respect to minimizing the impact on client service, privacy and costs.

Client FAQs

Under U.S. tax law, you are considered a U.S. person if you are:

  • A citizen of the U.S. (including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship);
  • A lawful resident of the U.S. (including a U.S. green card holder);
  • A person who resides in the U.S.

You also may be considered a U.S. person if you spend a significant number of days each year in the U.S. On this basis, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Other treaties with the U.S. provide similar relief. If you are unsure of your U.S. tax status, contact your tax advisor.

U.S. corporations, U.S. estates and U.S. trusts are also considered U.S. persons.

For more information about U.S. persons and their U.S. tax obligations, visit the IRS Website at:

In most cases, FATCA should have little impact. If you have an existing account and there is an indication that you may be a U.S. person, or if you are opening a new account, RBC may ask you to provide additional information or documentation to demonstrate that you are not a U.S. person.

If you are a U.S. person, you may be asked to complete IRS Form W-9 (Request for Taxpayer Identification Number and Certification) which will be kept on file at RBC. Information about you and your account will be reported to the local tax authority ( e.g. Canada Revenue Agency) or the IRS on an annual basis. If you have complied with all of your U.S. reporting obligations, reporting by RBC should not result in any increased U.S. tax liability, but you should discuss your personal tax situation with your tax advisor.

A U.S. citizen who lives outside the U.S. falls within the definition of a U.S. person for U.S. tax purposes, and must file U.S. tax returns. U.S. taxpayers may also have other U.S. reporting obligations. Foreign (non-U.S.) financial institutions will be required to identify the accounts of U.S. persons and report them to their local tax authority or the IRS annually. It is important that you consult with a tax advisor to understand your U.S. reporting obligations.

If one or more owners on a joint account is a U.S. Person, then the account will be treated as a U.S Reportable Account. The account will be reported as if it is wholly owned by each U.S. Person. Information about clients who are not identified as U.S. persons will not be reported to the CRA.

Yes, FATCA applies to all types of financial accounts, including life insurance policies with a cash value and annuity contracts.

For the 2014 calendar year (reported in 2015):

  • Name, address, and U.S. Taxpayer Identification Number (TIN) of the U.S. person or, in the case of a U.S.-owned foreign entity, the name, address and TIN (if any) of the entity, and the name, address and TIN of each substantial U.S. owner
  • Account number
  • Account balance or value at the end of the year (or immediately prior to account closure).

RBC employees are not able to provide legal or regulatory advice as it pertains to FATCA. We recommend that you seek the guidance of a tax or legal advisor for more specific answers on how FATCA may affect you or your family.

Most financial institutions around the world are affected by FATCA. We cannot comment on steps other institutions are taking.

Each RBC business undertakes due diligence with its clients in respect of FATCA. RBC businesses will each maintain client FATCA documentation and, accordingly, you may be contacted separately regarding FATCA by each RBC business with which you have an account. We appreciate your patience.

RBC will only disclose account information where you’ve provided your consent or where required by law, such as disclosure for tax purposes to the local tax authority (e.g. Canada Revenue Agency).