FATCA and the Malta-U.S. Intergovernmental Agreement

The Foreign Account Tax Compliance Act (FATCA) agreement between Malta and the United States entered into force on 26 June 2014.

The agreement was signed on 16 December 2013 and is based on a Model 1A, whereby the U.S. agreed to implement Foreign Account Tax Compliance provisions (commonly known as FATCA) in Malta.

FATCA requires Maltese financial institutions to register with the Internal Revenue Service (“IRS”) of the U.S. The Maltese financial institutions must register by 1st January 2015 for guaranteed inclusion on the first list of registered FATCA complaint financial institutions by applying for Global Intermediary Identification Number (GIIN).

Under the agreement, financial institutions that are resident or operating in Malta are obliged to report the information required under FATCA to the Maltese Commissioner of Inland Revenue (“CIR”), which in turn will report the information to the IRS, on financial accounts held by identified U.S. persons. The U.S. will also provide similar tax information to the Maltese CIR regarding individuals and entities from Malta with accounts in the U.S.

A 30% withholding tax will be imposed on the U.S. source income of any financial institution that fails to comply with FATCA.

The basic purpose of FATCA is to ensure that U.S. source income is reported to the U.S. government in order for the latter to determine the ownership of U.S. assets in foreign accounts.

Classification of taxpayers for U.S. tax purposes

U.S. law defines U.S. person as:

  • A citizen of the U.S. (including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship);
  • A lawful resident of the U.S. (including a U.S. green card holder);
  • A person residing in the U.S.;
  • A person spending considerable amount of time in the U.S. on a yearly basis;
  • A domestic partnership;
  • A domestic corporation;
  • Any estate other than a foreign estate;
  • Any trust if (i) a court within the U.S. is able to exercise primary supervision over the administration of the trust, and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust.