In addition to the profound impact these rules have on financial institutions, they will also have a lesser impact on Canadian enterprises which receive cross border payments and will be required to certify their eligibility for one of several FATCA entity exceptions.
FATCA introduced a series of business and systems requirements that appear simple in concept, but may be difficult and costly to operationalize. The aim for organizations affected by FATCA will be to meet the new compliance burden, while managing the associated compliance costs and risks.
The definition of FFI is broad and may unexpectedly include certain investment vehicles, investment managers, holding companies, finance companies, insurance captives and start-ups without significant active income. The definition also captures most funds, and as such, a fund and certain non-US entities in its affiliated group may be classified as FFIs. Other non-US entities within the Fund’s affiliated group may be classified as NFFEs.
An entity that is an FFI generally is required to register and enter into an agreement with the tax authorities to become a “participating FFI”.
A Canadian entity that is not a financial institution is considered a non-financial foreign entity (NFFE). An NFFE may be considered a “passive” NFFE, depending on the amount of its passive income and assets.
An entity that is an NFFE generally is required to determine its classification under the many NFFE categories.