The Foreign Account Tax Compliance Act (“FATCA”) is an information reporting and withholding regime which was enacted by the United States (“US”) in 2010 as part of the Hiring Incentives to Restore Employment (“HIRE”) Act.
Even though FATCA is a US law, it impacts Financial Institutions (“FIs”) organised outside the US and their customers across the world.
The United States enacted FATCA with an objective towards obtaining information on certain US persons with income or assets outside the United States for the purpose of increasing compliance with US tax laws. To obtain access to this information, FATCA generally requires withholding agents to withhold a 30% withholding tax on certain payments to non-US financial institutions (“foreign financial institutions” or “FFIs”) that do not conclude an agreement (“FFI agreement”) with the IRS wherein they agree to report information on their US account holders. In addition to reporting on their US account holders, FFIs will also be required to withhold on payments they make to their account holders that do not provide the requisite documentation regarding their FATCA status.
At the core of the FFI agreement between the FFI and the US tax authorities (the “Internal Revenue Services” or “IRS”) is the commitment of the financial institution to examine its existing customer base to identify and document its US accounts and then to report them to the IRS. This commitment covers accounts held by both individuals and entities. For FATCA purposes, a financial institution means a depository institution, a custodial institution, an investment entity, and insurance companies that issue cash value insurance contracts or annuity contracts. Generally, an account means a depository account, custodial account, and certain debt or equity interests in an FFI (excluding debt or equity interests that are regularly traded on an established securities market). Also included within the definition of an account is a cash value insurance contract or an annuity contract. The United States has issued detailed final Treasury Regulations covering many issues under FATCA. The IRS is approaching FATCA implementation in phases over an extended time period.
The US recognised that in some jurisdictions there are legal barriers to implementing FATCA as well as some practical difficulties for Financial Institutions in complying with FATCA. Therefore the US has entered into Intergovernmental Agreements (“IGAs”) with other jurisdictions in order to facilitate the implementation of FATCA. There are two Model IGA versions. The first model agreement (“Model 1”) involves the provision of information to the FATCA Partner government followed by a government-to-government exchange of information; the second (“Model 2”) involves the direct provision of information to the IRS. There are several variations of each Model Agreement. The Model 1 Agreement comes in both a reciprocal (“Model 1A”) and nonreciprocal (“Model 1B”) version.
On 7 January 2015, Qatar and the US government signed a Model 1B IGA, the “Agreement”, to implement FATCA in Qatar. Qatar is considered as an IGA partner jurisdiction, and as such Qatari based Financial Institutions should not be subject to a 30% withholding tax on US source income, unless they fail to meet the requirements set out in the Agreement.
Circular No. 21/2015 issued on the 17 March 2015 brought into effect the implementation of the Qatar-US IGA.
The Qatar Ministry of Finance (“MOF”), the “Competent Authority” in Qatar, has requested the Qatar Central Bank (“QCB”), Qatar Financial Market Authority (“QFMA”) and Qatar Financial Centre (“QFC”) to assist them with the implementation of the Agreement in Qatar. Further, the MOF has requested QCB to provide guidance and instructions to its licensed entities regarding the implementation of the Agreement and the reporting mechanisms for QCB licensed FIs. The Guidance Notes and any Circulars in relation to the Qatar-US IGA have been prepared to deliver the overarching principles of the Agreement, abiding by the spirit of the Agreement and developing international standards for the automatic exchange of information.
Under the terms of the Agreement, QCB Regulated Financial Institutions will provide the QCB FATCA Unit with the required information. The QCB FATCA Unit will in turn provide the required information to the Ministry of Finance. The Ministry of Finance will then forward that information to the US Internal Revenue Service.
Guidance notes on the compliance of the IGA