FATCA withholding is effective for US payments (any payment of U.S. source income: e.g. dividends, interest and any gross proceeds from the sale or disposition of a security) made after 2014/2015. The 30% withholding is not imposed for purposes of collecting withholding taxes but rather, to ensure that FFIs and other foreign entities disclose information about their U.S. account holders and owners. Therefore, beginning on 1 July 2013, foreign entities (and their common control affiliates) must either:
- identify and report to the IRS information about direct and indirect US account holders; or
- pay a 30% withholding tax on all US investment income and gross sale proceeds from U.S. stocks and securities.
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).