What is it for?
The idea behind the AEOI is to enable countries to collect information on where their tax residents (or citizens in the case of FATCA) have financial assets. This then enables those countries ensure that their tax residents or citizens are paying all taxes that they are liable to pay, especially in relation to financial assets held overseas.
What is it?
In Cayman, AEOI falls within two regimes; one referred to as “FATCA” and the other “CRS”.
FATCA refers to the US Foreign Account Tax Compliance Act and the inter-governmental agreements and implementing legislation which Cayman (and numerous other countries) have entered into with the US.
CRS or the Common Reporting Standard refers to the OECD’s standard for automatic exchange of financial account information. To date, more than 100 countries have agreed to automatically exchange information under CRS.
How does it work?
Cayman investment funds have to report information on the investments or “accounts” of their investors who are resident in reportable jurisdictions to the local tax authority, in Cayman Tax Information Authority (known as the TIA)).
The TIA then reports the information to the relevant tax authority in each relevant reportable jurisdiction (or, for FATCA, to the IRS). For example, information in relation to an investor in a Cayman fund would be reported to the TIA. The TIA would then report the information on the account of an investor, who is tax resident in Hong Kong, to the Hong Kong Inland Revenue Department and information in relation to the account of an investor which is tax resident in the UK to HM Revenue and Customs.
Other types of financial institutions have reporting obligations too but for the purpose of this post we are just looking at funds. It is worth mentioning that Cayman investment managers will fall within the AEOI regime, and whilst they will have nothing to report, they will need to register with the TIA.
Does it work both ways?
FATCA is one-way, in that participating jurisdictions report to the IRS but there is currently no reciprocal reporting. CRS is different in that it is reciprocal and there is two-way reporting (although some countries have elected not to receive information).
What do we have to do?
Cayman funds have to:
- appoint individuals to AEOI roles;
- FATCA Responsible Officer is required to register for a Global Intermediary Identification Number (GIIN),
- Principal Point of Contact to liaise with the TIA, and
- Authorising Person in realtion tot the TIA,
- register with the IRS and obtain a GIIN for FATCA purposes,
- register for reporting on the online AEOI portal of the TIA,
- implement AEOI policies and procedures,
- include relevant disclosures in their offering documents and self certification forms in their subscription agreements, and
- report on investors on an annual basis, and a new compliance form for the fund.
What do we report?
Funds have to report details of their investors and the value of their investments and redemptions during the reporting period.
If the investor is a financial institution (like another fund or a bank), nothing has to be reported on that investor.
Things get a little more complicated where the investor is a passive entity that receives income from passive investments but is not a financial institution and has no reporting obligations itself. In those circumstances, the reporting fund will have to look through those entities and may have to report on some of their shareholders and controllers.
Are there deadlines?
Yes, when a fund launches, it needs to register with the IRS and apply for a GIIN and it also needs to register with the TIA. Reports or nil returns must then be completed by 31 July each year.
What does this for investors?
Investors have always been obligated to pay taxes on their income and capital gains in accordance with the tax rules of the countries in which they are tax resident. The rules in each country are different and nothing about CRS or FATCA changes them. AEOI just means that information about the financial assets held by investors is exchanged with their countries of tax residence and so there is no hiding them.
How do we know where our investors are tax resident or what type of entity they are?
Onboarding of investors has become a bit more complicated and subscription agreements are now longer. Funds now need to get an additional form (a self certification) from investors and combine that with a bit of due diligence. In practice, this is not much more onerous than the normal on-boarding that your administrator does for each investor.
This all sounds complicated, can someone do it for me?
Many administrators offer this service, and WB also has a team who can do your AEOI reporting for you.
Let us know if you need our help with this and we can provide a proposal.