Luxembourg

FATCA: Implications for insurance and reinsurance companies 

Under FATCA, a 30% withholding tax applies to any US payments (interest, dividend or sales proceeds) made to a Foreign Financial Institution (FFI) unless the FFI agrees, pursuant to a disclosure compliance agreement entered into with the U.S. Treasury, to provide information with respect to each ‘financial account’ held by ‘specified U.S. persons’ and ‘U.S.-owned foreign entities.’

The term FFI may include banks, brokers, insurance and reinsurance companies and investment funds, including private equity funds, hedge funds and real estate funds, as well as certain professionals of the financial sector (PFS).

 

Who is impacted?

FATCA provisions are applicable to a wide range of foreign financial institutions (FFIs), including certain insurance companies, such as insurance companies which issue life-insurance contracts or annuity contracts (i.e. insurance companies that combine insurance protection with an investment component such as unit-linked policies, capitalising life insurance policies or pension policies).

 

However, insurance companies that issue insurance or reinsurance contracts without cash-value (i.e. non-life insurance contracts or term life insurance contracts) are excluded from the FFI definition.

What is the impact?

In order to comply with the FATCA provisions and to avoid the 30% withholding tax, the FFI must enter into a disclosure agreement with the U.S. Treasury and agree to:

 

  • identify U.S. policyholders, policy beneficiary, U.S. source investments;

    comply with verification and due diligence procedures;
  • perform annual reporting;
  • deduct and withhold 30% from any passthru payment made to a recalcitrant account holder or another institution without an FFI agreement; and
  • comply with requests for additional information.

How we can help

Complying with the FATCA rules will not only be a major compliance task to fulfill due to extended information reporting but will also influence your business strategy and the markets you serve.

 

The impact on insurance companies is not negligible and requires assistance of specialists.

 

  • Development of Implementation Plans : assistance in developing realistic, pragmatic, plans by utilizing our experience gained in other projects of similar scope and our deep understanding of the technical requirements.
  • Payment Mapping Analysis : assistance with conducting a mapping exercise to determine where your business is impacted and the nature of accounts to which payments are made.
  • Anti-Money Laundering (AML)/Know Your Client (KYC) Reviews : performing a review of the procedures in place for AML/KYC purposes to ascertain whether these will also be sufficient to ensure compliance with FATCA requirements.  We can also assist by developing new account opening procedures to facilitate FATCA compliance and provide training for staff responsible for these processes.
  • Systems Analysis : identify the extent of current capabilities and where new functionality or data records will be needed.  We can also assist in developing or reviewing specification documents and, to the extent we are permitted from a regulatory perspective, to implement and test new functionality.
  • FATCA Help Desk : help desk services that enable staff specified by clients to call with any technical questions related to FATCA.

     

     Consult our FATCA Workshop brochure.pdf (250 KB)