23 March 2018
If you run a charitable foundation in the UK or are a trustee of a UK charitable foundation you may have read about the additional tax reporting and regulations imposed by the US FATCA (Foreign Account Tax Compliance Act) rules on bank and financial accounts held by charities. US persons may wonder whether there are any additional reporting requirements that apply by virtue of their involvement with a UK charitable foundation.
First of all, a little background. Complex regulations have been released by the US Treasury Department implementing the FATCA rules on a global basis. These regulations include a rather complex variety of procedures for non-US charities to comply with the FATCA reporting requirements. These rules potentially apply both reporting requirements with respect to US persons associated with these charities and a withholding tax on US source passive income and proceeds of sale of stock.
The fact that a charity has no direct US investments or connection with the United States will not prevent FATCA being applied by their bankers and brokers, who will undoubtedly be themselves registering as participating foreign financial institutions under the [majority of the] FATCA rules.
Now for the good news: the UK (along with most of the rest of the world) is putting in place an inter-governmental agreement (‘IGA’) which replaces the normal FATCA regime with a modified regime whereby compliance for UK charities will be much more straightforward. HMRC has issued guidelines to implement these rules; obviating the need for UK charities to read the 532 pages of US Treasury regulations!
Under the UK IGA and the HMRC guidelines, most UK charities will be ‘certified deemed compliant’ if they are: (1) registered as a charity with the Charity Commission in England; (2) registered with HMRC for charitable tax purposes; (3) registered as a charity with the office of the Scottish Charity Regulator; or (4) a community amateur sports club rep which is registered with HMRC. Separate requirements apply to non-US Chambers of Commerce, business leagues and so forth which can qualify for a different FATCA category under the UK IGA.
However, charities should bear in mind that, with respect to their direct US investment portfolio, they will still be subject to regular US withholding tax unless they go through the US withholding tax certification requirements. Broadly, this means that they will need to comply with the W8 filing requirements which will require them to certify that they are equivalent to a US non-profit organisation.
Complications under the IGA can arise if your charity is not a UK resident organisation or you do not qualify under the above tests. For example, if your charity is resident in another country you will need to determine whether it qualifies as a resident of that country for the purposes of a different IGA or whether it will need to qualify under the FATCA regulations. We anticipate that there may be some complications for the application of these rules to international charities with charity registrations in several different countries.
So the good news for charities in the UK is that they do not have to register with the IRS, provided they qualify under the IGA. They still have to provide W8EXP or W8BEN-E to banks or investment houses. US citizens should remember that if they have signatory authority on a charities foreign bank account, this may still trigger a personal FBAR reporting requirement.
Overall, this is good news for UK charities and for dual qualified charitable structures