Reclassification of your offshore entity - potential reporting requirements and obligations for FATCA and CRS
Is it possible that the classification of your offshore entity has changed, and it now has reporting requirements and obligations for FATCA and CRS?
If you have an offshore entity, it's important to be aware of the reporting and compliance requirements under the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). These regulations require financial institutions and certain types of entities to report information about foreign accounts and assets to their home country's tax authority.
There are some scenarios that make it possible that the classification of your offshore entity may have changed over time these include:
Change in Business Activities
If the business activities of your offshore entity change significantly (such as a shift in investment strategy or a change in the type of income earned), it may be necessary to reclassify the entity. This can impact the reporting requirements and obligations under FATCA and CRS. For example, if your offshore entity begins earning income that is subject to withholding tax under FATCA and CRS, you may need to report this income to your home country's tax authority.
Change in Ownership
If there is a change in the ownership of your offshore entity (such as a change in the ownership percentage held by a particular individual or entity), it may be necessary to reclassify the entity. This can impact the reporting requirements and obligations under FATCA and CRS. For example, if your offshore entity is now owned by a U.S. person, it may be subject to reporting requirements under FATCA.
Change in legal structure
If your offshore entity undergoes a change in its legal structure (such as a merger, acquisition, or reorganization), it may be necessary to reclassify the entity. This can impact the reporting requirements and obligations under FATCA and CRS. For example, if your offshore entity is now a passive non-financial foreign entity (NFFE), it may be subject to reporting requirements under FATCA.
It's important to note that the scenarios listed above are not exhaustive, and there may be other reasons why your offshore entity has changed and now has reporting requirements and obligations for FATCA and CRS. It's important to be aware of the reporting and compliance requirements under FATCA and CRS.
If there is a possibility that your offshore entity has changed and you need help determining your entity's classification status, our Harneys CRS & FATCA Classification Solution can assist you. It's designed to make it easy for owners and directors of BVI and Cayman Islands entities to identify their regulatory obligations under both FATCA and CRS, and ensure compliance with these regimes.
