If you are a trustee of a UK charitable foundation or you run a charitable foundation in the UK you may be familiar with the additional tax reporting and regulations imposed by the US FATCA (Foreign Account Tax Compliance Act) rules on bank and financial accounts held by charities.
Complex regulations released by the US Treasury Department implementing the FATCA rules on a global basis include a complex variety of procedures for non-US charities to comply with the FATCA reporting requirements. These rules potentially apply both reporting requirements with respect to US persons associated with these charities and a withholding tax on US source passive income and proceeds of sale of stock.
The fact that a charity has no direct US investments or connection with the United States will not prevent FATCA being applied by their bankers and brokers, who will probably be registering as participating foreign financial institutions under most of the FATCA rules.
The UK, along with most of the rest of the world, is creating an inter-governmental agreement (‘IGA’) to replace the normal FATCA regime with a modified regime whereby compliance for UK charities will be simplified. HMRC has issued guidelines to implement these rules.
Under the UK IGA and the HMRC guidelines, most UK charities will be ‘certified deemed compliant’ if they are:
(1) registered as a charity with the Charity Commission in England;
(2) registered with HMRC for charitable tax purposes;
(3) registered as a charity with the office of the Scottish Charity Regulator, and;
(4) a community amateur sports club rep which is registered with HMRC. Separate requirements apply to non-US Chambers of Commerce, business leagues and others which can qualify for a different FATCA category under the UK IGA.
However, charities should bear in mind that, with respect to their direct US investment portfolio, they will still be subject to regular US with holding tax unless they go through the US with holding tax certification requirements.
They will need to comply with the W8 filing requirements which request that they certify that they are equivalent to a US non-profit organisation.
Complications under the IGA can arise if your charity is not aUKresident organisation or you do not qualify under the above tests.
Charities in theUKdo not have to register with the IRS, as long as they qualify under the IGA. However, they still have to provide W8EXP or W8BEN-E to banks or investment houses.
Overall, this is good news for UK charities and for dual qualified charitable structures.