Ernst & Young Nigeria, a leading professional services organisation has advised foreign firms operating in the country to ensure that they comply with the United States’ Foreign Account Tax Compliance Act (FATCA).
The FATCA is a portion of the 2010 Hiring Incentives to Restore Employment (HIRE) Act that requires individuals to report their financial accounts held overseas and foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients.
Partners at Ernst & Young Nigeria that spoke at a forum organised by the firm in Lagos, said the regulation was targeted at countering offshore tax avoidance by US nationals, adding that the law would be enforced by financial institutions in the country as well as their foreign subsidiaries.
The Regional Managing Partner, Ernst & Young, Mr. Henry Egbiki, noted that the forum was to engage stakeholders and also enlighten them on the benefits and issues around the policy.
“FATCA is to reduce US tax evasion by enabling the US IRS to obtain information regarding worldwide income of US persons, in response to a series of cases in which some banks were alleged to have aided their clients evade taxes. Consequently, financial institutions around the globe now face complex and onerous compliance burden to meet FATCA requirements.
“Effectively, FATCA requires banks and asset managers in Nigeria not only to enter into an agreement or register with the IRS, but to identify all U.S. account holders and investors, treat any non-cooperating investors as ‘recalcitrant’, and deduct a 30 per cent withholding tax on U.S source income from those who fall into the category,” he explained.
Egbiki, who was represented by Mr. Dayo Babatunde, noted that if financial institutions or their account holders were found to be non-compliant, they would be liable for a 30 per cent withholding tax on certain payments received after December 31, 2013.
“In South Africa, the big banks are ahead of the game in completing an impact assessment and optimising solutions, while in the rest of Africa, FATCA is mainly unheard of. In Europe and the Middle East, a lot of the large and global financial institutions have either already completed their FATCA analysis or are already in the solution design stage,” he added.
In his presentation, the Senior Manager, Asset Management Sector, Africa and FATCA Specialist, Ernst & Young, Mr. Eugene Skrynnyk, declared that FATCA would affect every financial institution in Africa, either directly in their core business or indirectly through relationships with other financial institutions.