Foreign Account Tax Compliance Act

(Updated: 03/06/25)

Introduction

The Foreign Account Tax Compliance Act (FATCA) requires financial institutions outside the US to pass information about their US customers to the IRS to tackle tax evasion. In the UK, this information is passed on to the IRS via the HRMC. A 30% withholding tax is imposed on the US source income of any financial institution that fails to comply with this requirement.

Full guidance notes on compliance with FATCA have been developed under consultation by HMRC. ABCUL has successfully lobbied for an exemption which means that the vast majority of credit unions need do nothing for FATCA compliance. Only credit unions with more than $175 million in assets must put in place policies and procedures.

If you have any questions on FATCA please contact your MRM by emailing them direct, on info@abcul.org or dialling 0161 832 3694.

Credit unions with under $175 million in assets

Thanks to ABCUL lobbying, the vast majority of credit unions are deemed compliant financial institutions under the category non-registering local banks and are therefore exempt from reporting obligations. A credit union is a non-registering local bank if:

1) It does not have more than $175 million in assets ($500 million total for a group of related entities)

2) It does not have a fixed place of business outside of the UK; this does not include a location that is not advertised to the public and from which the financial institution performs solely administrative support functions.

3) It has policies and procedures in order not to solicit potential financial account holders outside the UK, this requirement is usually covered by a credit union’s common bond. For clarity – a credit union can operate a website provided that the website does not specifically indicate that the Financial Institution provides accounts or services to non-UK residents or otherwise target or solicit US customers.

If these criteria are met the credit union does not need to report to the HMRC on FATCA, register with the IRS or acquire a Global Intermediary Identification Number.

Credit unions with over $175 million in assets

If a credit union has over $175 million in assets they may be classified as a “Local Client Base Financial Institution” and must abide by further requirements to be deemed compliant with FATCA.

There are 10 requirements, which are as follows:

1) The financial Institution must be licensed and regulated under the laws of the UK

2) The financial institution must have no fixed place of business outside the UK other than where the location outside of the UK houses solely administrative functions and is not publicly advertised to customers.

3) The financial institution must not solicit potential financial account holders outside the UK. For this purpose, a financial institution shall not be considered to have solicited such customers outside the UK merely because it operates a website, provided that the website does not specifically indicate that the financial institution provides accounts or services to non-UK residents or otherwise target or solicit US customers.

4) The financial institution is required under the tax laws of the UK to perform information reporting or the withholding of tax with respect to accounts held by residents of the UK or is required to identify whether accounts holders are resident in the UK as part of the Anti-Money Laundering procedures.

5)  At least 98 per cent of the financial institution’s accounts by value must be held by people who reside in the UK or another member state of the European Union. The 98 per cent threshold can include the accounts of US persons if they are resident within the UK. A financial institution will need to assess whether it meets these criteria annually. The measurement can be taken at any point of the preceding calendar year for it to apply to the following year, as long as the measurement date remains the same from year to year.

6)  Subject to 7 below, the financial institution does not provide financial accounts to:

i. Any Specified US Person who is not a resident of the UK (including a US Person that was a resident of the UK when the account was opened, but subsequently ceases to be a resident of the UK).

ii. A Non-Participating Financial Institution (i.e. a financial institution which fails to comply with FATCA

iii. Any Passive Non-Financial Foreign Entity (NFFE) with Controlling Persons who are US citizens or resident for tax purposes who are not resident in the UK.

7)  Credit unions must implement policies and procedures to establish and monitor whether it provides financial accounts to the persons described in (6) above. If any such financial account is discovered, the financial institution must report that account as though the financial institution were fully subject to FATCA, close the account, or transfer the account to a participating financial institution.

8)  With respect to each financial account that is held by an individual who is not a resident of the UK or by an entity, and that is opened prior to the date that the financial institution implements the policies and procedures described in subparagraph (7) above, the financial institution must review those accounts to identify any US reportable account or financial account held by a non-compliant financial institution. Where such accounts are identified, they must be reported, closed or transferred as per (7) above.

9) Each related entity of the financial institution (i.e. a subsidiary or part of a Group), must also meet the requirements for a “Local Client Base Financial Institution”.

10) The financial institution must not have policies or practices that discriminate against opening or maintaining accounts for individuals who are Specified US Persons and who are residents of the UK.

What this means in effect is that a credit union with more than $175 million in assets must put in place procedures to identify US persons and where they are found, either close their accounts or report on these to HMRC in the same way as any other financial institution has to. A credit union in this situation can elect to only report on US persons with account balances of more than $50,000 in their account.

FATCA reports would be made to HMRC through the same system as credit unions use for implementing the Automatic Exchange of Information (AEOI) under the common reporting standard. Please see ABCUL’s guidance on International Tax Regulations – Automatic Exchange of Information for more information.