Q- As far as my Cayman Islands company doesn’t have US investors, does it have to register with FATCA?

A- Yes- The IGAs and the FATCA Regulations apply to all Cayman Islands Financial Institutions (“CFIs”), regardless of whether they hold any Financial Accounts for Specified Persons. (see research below).

Q- Does my company have to register with IRS for a Global Intermediary Identification Number (GIIN)

A- Exempt Beneficial Owners will not need to register for a GIIN (see section 5.4) however I don’t believe the exemptions apply.

Q- Does my company have to apply to the Cayman Tax Information Authority (TIA) via their AEOI portal?

A- Only if FATCA reporting is required. See below for more details

Q- Does my Cayman Company have to Submit AEOI returns annually as required by the legislation?

A- As per the FATCA reporting requirements, there are a number of exemptions and clauses that may relieve the return of AEOIs accordingly. With reference to the (The Cayman Mutual Funds (Amendment) Law (2020 Revision) and other FATCA guidance, we will look more in depth at this now.

Section 3. NON-REPORTING FINANCIAL INSTITUTIONS of the The Cayman Mutual Funds Law.

3.1. All Cayman Islands Financial Institutions will be Reporting Financial Institutions unless an exemption is provided in Annex II of the Intergovernmental Agreement (or IGA) to allow the Financial Institution to be treated as Non-Reporting.

Annex II of the US Agreement classifies certain legal entities as “Exempt Beneficial Owners” and “Deemed Compliant Financial Institutions”, which are collectively considered to be “Non-Reporting Financial Institutions”, as well as referring to certain excluded accounts.

Additionally, there are certain categories of Deemed Compliant Financial Institutions separately recognised under the US Regulations and these exemptions have been specifically imported into these Guidance Notes. Financial Institutions referred to as Registered Deemed Compliant will be obliged to register with the IRS and obtain a GIIN.

Financial Institutions referred to as Certified Deemed Compliant will not need to register with the IRS (excluding for certain limited exceptions). Rather than registering with the IRS, Certified Deemed Compliant Financial Institutions should self-certify with withholding agents to evidence their status and avoid the imposition of 30% withholding on US source payments.

Under US Regulations and sSection 1.1471-5(f)(2); “A certified deemed compliant FFI also includes any non-reporting IGA Foreign Financial Institution (or FFI). A certified deemed-compliant FFI is not required to register with the IRS”.

Accordingly, Deemed Compliant Financial Institutions are Financial Institutions identified as Certified Deemed Compliant under Annex II, or otherwise are eligible as Certified or Registered Deemed Compliant, or an Owner Documented Deemed Compliant.

Exempt Beneficial Owners and Deemed Compliant Financial Institutions have no reporting obligations in respect of Financial Accounts that they maintain under the US Agreement.

Such a Financial Institution that meets the following requirements can be treated as Registered Deemed Compliant:

By the later date of June 30th 2014 or the date the legal entity obtains a GIIN, the Financial Institution implements policies and procedures to allow for the identification and reporting of:

• Pre-existing Reportable Accounts.
• Reportable Accounts opened on or after July 1st
• Accounts that become Reportable Accounts as a result of a change in circumstances.
• Accounts held by Non Passive Financial Institutions.

What is the scope of Intergovernmental Agreements and FATCA Regulations?

The IGAs and the FATCA Regulations apply to all Cayman Islands Financial Institutions (“CFIs”), irrespective of whether they hold any Financial Accounts for Specified Persons.

Essentially under the new 2020 legislation, action will be required of all CFIs that maintain Financial Accounts. The extent of that action will depend on a number of factors including whether account holders are Specified Persons and the value and nature of the Financial Account.

A CFI is any Financial Institution organised under the laws of or resident in the Cayman Islands. For these purposes, organised under the laws of the Cayman Islands means the following:

• for a company, if the company is incorporated in the Cayman Islands.
• for trusts, if any of the trustees are incorporated, registered or licensed in the Cayman Islands, and
• for partnerships, if the partnership is established in the Cayman Islands.

Section 2.4. Non-Reporting Cayman Islands Financial Institutions

A Non-Reporting Cayman Islands Financial Institution is any Cayman Islands Financial Institution that falls within the exemptions set out the US Regulations or one which otherwise qualifies as:

A Deemed Compliant Financial Institution

Section 3.2. Registered Deemed Compliant Financial Institutions

The Registered Deemed Compliant categories noted in this section are inserted from the US Regulations. They should be considered in conjunction with the Certified Deemed Compliant categories noted in the next section, which arise largely under Annex II of the US Agreement.

A Cayman Financial Institution that qualifies as one of the Registered Deemed Compliant categories below will need to register with the IRS to obtain a GIIN, or be registered by another legal entity. These types of Financial Institution will not need to report, however details of Financial Accounts maintained by the Financial Institution may be reported by another entity entirely.

An Owner Documented Financial Institution

Section 3.4. Owner Documented Financial Institutions (US Regulations 1471- 5F)

This category is intended to reduce the burden of meeting the obligations under the Agreements for closely held passive investment vehicles that fall within the definition of Investment Entity. It is not however restricted to those cases.

In order to qualify under this category, the Investment Entity must satisfy the following:

• It must not maintain a Financial Account for any Non-Participating Financial Institution;
• It must not be owned by, nor be a member of, a group of Related Entities with any member that is a Depository Institution, Custodial Institution or Specified Insurance Company (i.e. it can only be affiliated to other Investment Entities); and
• It must provide the required documentation regarding its owners and agree to notify any changes in its circumstances to the Financial Institution that is undertaking the reporting obligations on its behalf.
• The Financial Institution that has agreed to undertake the reporting obligations on behalf of the Investment Entity must agree to report the information relating to Specified Persons but will not report in respect of any indirect owner that holds its interest through a Participating Financial Institution, Model 1 Financial Institution, Deemed Compliant Financial Institution (other than another Owner Documented Financial Institution), an entity that is a US Person, an Exempt Beneficial Owner or an Excepted NFFE.

Exempt Beneficial Owners of CFIs.

Section 5. EXEMPT BENEFICIAL OWNERS

5.1. General Entities regarded as Exempt Beneficial Owners (and therefore Non-Reporting Financial Institutions) and Excluded Accounts are set out in Annex II to the US and UK Agreement. This section sets out those entities and products that are treated as Exempt Beneficial Owners for the Cayman Islands, but this is not an exhaustive list.

5.2. Governmental Entities For the Cayman Islands this includes:

Cayman Islands Monetary Authority

5.3. Retirement/pension funds

The following will be Non-Reporting Cayman Islands Financial Institutions for the purpose of the Agreements:

• Broad and Narrow Participation Retirement Funds which meet the criteria set out in Annex II of the Agreements. For the purpose of the Agreements, retirement funds are ‘subject to government regulation’ if they are registered with the Cayman Islands National Pensions Office; and
• Pension Funds managed and administered by the Public Service Pensions Board as these are Pension Funds of an Exempt Beneficial Owner.

Exempt Beneficial Owners will not need to register for a GIIN.

5.4. Limited Capacity Exempt Beneficial Owners

An addition has been made to Annex II in the UK Agreement, by adding a new 52 section, “Limited Capacity Exempt Beneficial Owners” at Annex II.I.G under Additional Entities.

This new section ensures that the Controlling Persons of a charity shall be treated as Exempt Beneficial Owner solely in their capacity as a Controlling Person of that charity, therefore removing the requirement to ‘look through’ the charity to the Controlling Persons. This brings the treatment under the UK Agreement in line with the treatment under the US Agreement.

Annex II Non-Reporting Cayman Islands Financial Institutions

Exempt Beneficial Owners.

The following Entities are exempt beneficial owners and are treated as Non-Reporting Cayman Islands Financial Institutions.

Additional Entities.

Limited Capacity Exempt Beneficial Owners.

The Controlling Persons of an NFFE that meets all of the following requirements shall be treated as an Exempt Beneficial Owner solely in their capacity as a Controlling Person of that NFFE:

1. It is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organization, civic league or an organisation operated exclusively for the promotion of social welfare;
2. It is exempt from income tax in its jurisdiction of residence;

It has no shareholders or members who have a proprietary or beneficial interest in its income or assets;

1. The applicable laws of the NFFE’s jurisdiction of residence or the NFFE’s formation documents do not permit any income or assets of the NFFE to be distributed to, or applied for the benefit of, a private person or non-charitable Entity other than pursuant to the conduct of the NFFE’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the NFFE has purchased; and
2. The applicable laws of the NFFE’s jurisdiction of residence or the NFFE’s formation documents require that, upon the NFFE’s liquidation or dissolution, all of its assets be distributed to a governmental entity or other non-profit organisation, or escheat to the government of the NFFE’s jurisdiction of residence or any political subdivision thereof.

Legal Sources Cited

US Regulations: 1471- 5(f)(3)

http://tia.gov.ky/pdf/FATCA_Guidance_Notes.pdf

https://www.ogier.com/publications/establishing-a-cayman-islands-open-ended-fund

https://sec.report/Document/0001741448-18-000001/

https://www.stuartslaw.com/site/resources/publications_legal_updates/latest_news/how-does-us-and-uk-fatca-apply