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FATCA: Foreign Financial Institutions & NFFE’s

June 29, 2018

The Foreign Account Tax Compliance Act (FATCA), which was passed as part of the HIRE Act, was implemented to able foreign financial Institutions and certain other non-financial foreign entities to report on the foreign assets held by their US-based account holders or be subject to withholding tax on the relevant payments.

FATCA also targets non-compliance on tax payments by US taxpayers holding foreign bank accounts. More specifically, FATCA mainly deals with US taxpayers who must report their foreign financial accounts and offshore assets and the Foreign Financial Institutions.


Generally speaking, FATCA aims to facilitate the reporting of foreign financial assets, to find US accounts in foreign financial institutions’ and find those using different vehicles to reduce the tax burden located outside of the US. Within the category of the one may find

  • Banks & Service Providers.
  • Holding & Subsidiary Companies.
  • Depositories.
  • Custodial Entities.
  • Investment Entities.
  • Specified Insurance Companies.
  • Treasury Centres.

What happens though in the cases of Non-Financial Foreign Entities?  NFFE’s are all non-US entities that are not treated as a Financial Institution. NFFEs include foreign entities that are:

  • All entities not engaged in the banking & investment business sphere.
  • Something that can be categorised as Active NFFE or a Passive NFFE.

In order to identify if an NFFE is active or passive there are certain criteria the entity must meet. To qualify as a passive entity, the entity must be a partnership or trust, other than a business trust, for the entire accounting period on which the tax is based. The entity may not qualify as passive for the accounting period during which the conversion occurs even if it meets the 90% income test.

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