December 2015

FATCA made simple

Please find below a guide on the most common FATCA classifications for Cayman Islands entities. Further explanation of the classification is included in the notes below.

 

Cayman Islands Entities Type: FATCA Classification: Notes:
 Mutual Fund CIMA registered as a MF1 / MF2 fund Reporting Model 1 FFI   Must obtain a GIIN and file on the Cayman Islands TIA FATCA Portal – See NOTE 1
 Master Fund CIMA registered as MF3 master fund  Reporting Model 1 FFI Must obtain a GIIN and file on the Cayman Islands TIA FATCA Portal– See NOTE 1
 Manager (SIBL Excluded Person)  NonReporting IGA FFI No GIIN required – does not register on the Cayman Islands TIA FATCA Portal. Part XII of the W-8BEN-E requires the inclusion of “Cayman Islands” and the entity as being treated as a “Deemed-Compliant FFI” – See NOTE 2
 Fund not CIMA registered  Reporting Model 1 FFI Must obtain a GIIN and file on the Cayman Islands TIA FATCA Portal– See NOTE 3
 Non-Fund Investment entity not CIMA registered  Probably Reporting Model 1 FFI Must obtain a GIIN and file on the Cayman Islands TIA FATCA Portal– See NOTE 4
 Non-Financial Foreign Entity  NFFE – active   See NOTE 5
 Non-Financial Foreign Entity  NFFE – passive   See NOTE 5

 

NOTE 1Mutual Fund CIMA registered as MF1 / MF2 type fund /MF3 master fund  Suggested Classification: Reporting Model 1 FFI (on W-8BEN-E)
Definition of FFIThe main consideration is whether the fund entity falls within the definition of an at FFI in US and Cayman Islands Intergovernmental Agreement “IGA”, which all Cayman Islands funds clearly do (see C below):“Foreign Financial Institution Any foreign entity that:

A  Accepts deposits in the ordinary course of a banking or similar business (banks, credit unions), 

B  Holds financial assets for the account of others as a substantial portion of its business (brokerages, custodians),or

C Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities (mutual funds, private equity funds, hedge funds).”

 

To register as a Reporting Model 1 FFI all that is required is:

 

1. obtain a GIIN; and

2.  register on the FACTA Cayman Islands portal

 

This way a fund can easily complete the W-8BEN-E it will be noted as a “Reporting Model 1 FFI” on the W-8BEN-E with the GIIN number included (box 9a) certifying that the fund complies with FATCA and is registered with the IRS. This would avoid any requirement to disclose the UBO’s nor engage other withholding agents as it will be correctly categorized under the IGA.

 

NOTE 2Manager SIBL Excluded PersonSuggested Classification: NonReporting IGA FFI (on W-8BEN-E)
The Cayman Islands FATCA Guidance Notes in section 2.3 specifically state that all Cayman Islands entities must obtain a GIIN unless exempt under Annex II of the Inter-governmental Agreement (“IGA”). The Cayman Islands Manager is specifically provided for the in the IGA Annex II.The IGA describes an investment entity in Article 1 – Definitions:j) “Investment Entity” includes (3)            “otherwise investing, administering, or managing funds or money on behalf of other persons”

 

Therefore the Cayman Islands SIBL manager is considered an Investment Entity, however it qualifies as a Deemed-Compliant Investment Entity:

 

Page 40 of the IGA

 

“IV Investment Entities that Qualify as Deemed-Compliant FFIs and Other Special Rules. The Financial Institutions described in paragraphs A through E of this section are Non-Reporting Cayman Islands Financial Institutions that are treated as deemed- compliant FFIs for purposes of section 1471 of the U.S. Internal Revenue Code. In addition, paragraph F of this section provides special rules applicable to an Investment Entity.”

 

This includes:

 

Page 42 of the IGA “D. Investment Advisors and Investment Managers. An Investment Entity established in the Cayman Islands that is a Financial Institution solely because it (1) renders investment advice to, and acts on behalf of, or (2) manages portfolios for, and acts on behalf of, a customer for the purposes of investing, managing, or administering funds deposited in the name of the customer with a Financial Institution other than a Nonparticipating Financial Institution.”

“the reporting obligations of any Investment Entity that is a Cayman Islands Financial Institution (other than a Financial Institution through which interests in the collective investment vehicle are held) shall be deemed fulfilled.”

 

In summary this means that although the Cayman Islands Manager is an Investment Entity there is an exemption for Cayman Islands managers so they do not require to register for a GIIN and they are a non-reporting entity and it will be noted as a “NonReporting IGA FFI” on the W-8BEN-E. Thereafter information in Part XII of the W-8BENE is “Cayman Islands” and it is treated as a “Deemed-Compliant FFI”.

 

NOTE 3Mutual Fund Non-CIMA registeredSuggested Classification: Reporting Model 1 FFI (on W-8BEN-E) 
The Cayman Islands FATCA Guidance Notes in section 2.3 specifically state that all Cayman Islands entities must obtain a GIIN unless exempt under Annex II of the Inter-governmental Agreement (“IGA”).  The fact that it is not registered with CIMA has no impact on its FATCA classification.The main consideration is whether the non-CIMA registered fund entity falls within the definition of an at FFI in US and Cayman Islands Intergovernmental Agreement “IGA”, which most likely does as per below (see C below):“Foreign Financial Institution Any foreign entity that:A  Accepts deposits in the ordinary course of a banking or similar business (banks, credit unions), 

B  Holds financial assets for the account of others as a substantial portion of its business (brokerages, custodians),or

C Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities (mutual funds, private equity funds, hedge funds).”

 

To register as a Reporting Model 1 FFI all that is required is:

 

1. obtain a GIIN; and

2.  register on the FACTA Cayman Islands portal

 

This way a non-CIMA registered fund can easily complete the W-8BEN-E it will be noted as a “Reporting Model 1 FFI” on the W-8BEN-E with the GIIN number included (box 9a) certifying that the non-CIMA registered fund complies with FATCA and is registered with the IRS. This would avoid any requirement to disclose the UBO’s nor engage other withholding agents as it will be correctly categorized under the IGA.

 

 

NOTE 4 Non-Fund Investment Entity non-CIMA registeredSuggested Classification: Reporting Model 1 FFI (on W-8BEN-E) 
The Cayman Islands FATCA Guidance Notes in section 2.3 specifically state that all Cayman Islands entities must obtain a GIIN unless exempt under Annex II of the Inter-governmental Agreement (“IGA”).  The fact that it is simply an investment vehicle is only one consideration of its FATCA classification.The main consideration is whether the investment entity falls within the definition of an at FFI in US and Cayman Islands Intergovernmental Agreement “IGA”, which most likely does as per below (see C below):“Foreign Financial Institution Any foreign entity that:A  Accepts deposits in the ordinary course of a banking or similar business (banks, credit unions), 

B  Holds financial assets for the account of others as a substantial portion of its business (brokerages, custodians),or

C Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities (mutual funds, private equity funds, hedge funds).”

 

For the most comment types of investment entities there is no exemption provided under Annex II of the IGA and it is caught by the above wide definition.

 

To register as a Reporting Model 1 FFI all that is required is:

 

1. obtain a GIIN; and

2.  register on the FACTA Cayman Islands portal

 

This way an investment entity can easily complete the W-8BEN-E it will be noted as a “Reporting Model 1 FFI” on the W-8BEN-E with the GIIN number included (box 9a) certifying that it complies with FATCA and is registered with the IRS. This would avoid any requirement to disclose the UBO’s nor engage other withholding agents as it will be correctly categorized under the IGA.

 

 

NOTE 5                                              Non-Financial Foreign Entity Suggested Classification: NFFE – Active or NFFE – Passive (on W-8BEN-E)  
The Cayman Islands FATCA Guidance Notes in section 2.3 specifically state that all Cayman Islands entities must obtain a GIIN unless exempt under Annex II of the Inter-governmental Agreement (“IGA”).A NFFE can be such an entity and in order to be designated as a NFFE the IGA states that a “Non-Financial Foreign Entity: is a foreign entity that is excluded from the definition of FFI. 

Then provided it does not get caught by any of the below criteria:

 

“Foreign Financial Institution Any foreign entity that:

A  Accepts deposits in the ordinary course of a banking or similar business (banks, credit unions), 

B  Holds financial assets for the account of others as a substantial portion of its business (brokerages, custodians),or

C Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities (mutual funds, private equity funds, hedge funds).”

 

Then it is possible to be designated as a either active or passive:

 

NFFE Passive –  it is an investment entity with more than 50% income from investments

 

NFFE Active –  it is an entity with less than 50% income from investments

 

 

Passive NFFE is the most comment entity that requires to be classified. The impact of selecting a Passive NFFE shifts the responsibility to a financial institution that the NFFE has a relationship with which in turn has to establish the status of the NFFE by requiring information on the activities and the ownership of the Cayman Islands company. Almost all Cayman Islands mutual funds are Reporting Model 1 FFI, who must ensure they are satisfied that they do not have US persons hidden in a NFFE that might make an investment.  This requirement on the fund that the investment is made is applicable regardless of whether it is a NFFE Direct reporting to the IRS. Also in some situations FFI’s are prohibited from selling their interests / shares to NFFE’s.

 

The only Cayman Islands investment entities that are normally deemed to be an NFFE’s are:

 

1) where the entity is acting as an agent or intermediary with respect to the investment

2) Publicly, regularly traded corporation (where a Cayman Islands entity offers only to the members of the public in the Cayman Islands)

 

 

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