US and IRS to impose 30% witholding on ALL foreign income...

[Xcalaker]

On March 18th, with little if any pomp and circumstance – downright unnoticed by most – Obama signed off on the US$ 17.5 billion 'Hiring Incentives to Restore Employment Act' (H.R. 2487), in brief 'HIRE'. Amidst a long mire of legal gibberish that few would ever bear the pain of reading, provisions on 'Foreign Account Tax Compliance´ (FATCA) were hidden.

In brief, these provisions require that foreign financial institutions (so called FFI's – and not just banks!) not only withhold 30% of all US source capital flows (supposedly remitting the collection promptly back to the US Treasury) but also to disclose the full details of non-exempt account holders to the US and the IRS.

In order to avoid the 30% withholding tax, an FFI would have to agree to become a QFFI (a Qualified Foreign Financial Institution). Of course, under such circumstances, a QFFI must fully report all "non-exempt US account holders", i.e. give up any and all client confidentiality against US tax authorities

READ MORE HERE:

http://www.paulhastings.com/assets/publications/1473.pdf?wt.mc_ID=1473.pdf

http://www.ballardspahr.com/alertspublications/legalalerts/2010-03-30_fatcahireact.aspx

http://solari.com/blog/?p=6774

A a contrarian view here:

http://www.thedailybell.com/974/Frank-Suess-HIRE-FATCA-QFFI-Beware-of-Rampant-Laws-in-Response-to-Rampant-Spending.html

Will everybody happily play along or will some 'FFIs' tell the US take a flying hike?

[jimmiller]

On March 18th, with little if any pomp and circumstance – downright unnoticed by most – Obama signed off on the US$ 17.5 billion 'Hiring Incentives to Restore Employment Act' (H.R. 2487), in brief 'HIRE'. Amidst a long mire of legal gibberish that few would ever bear the pain of reading, provisions on 'Foreign Account Tax Compliance´ (FATCA) were hidden.

In brief, these provisions require that foreign financial institutions (so called FFI's – and not just banks!) not only withhold 30% of all US source capital flows (supposedly remitting the collection promptly back to the US Treasury) but also to disclose the full details of non-exempt account holders to the US and the IRS.

In order to avoid the 30% withholding tax, an FFI would have to agree to become a QFFI (a Qualified Foreign Financial Institution). Of course, under such circumstances, a QFFI must fully report all "non-exempt US account holders", i.e. give up any and all client confidentiality against US tax authorities

READ MORE HERE:

http://www.paulhastings.com/assets/publications/1473.pdf?wt.mc_ID=1473.pdf

http://www.ballardspahr.com/alertspublications/legalalerts/2010-03-30_fatcahireact.aspx

http://solari.com/blog/?p=6774

A a contrarian view here:

http://www.thedailybell.com/974/Frank-Suess-HIRE-FATCA-QFFI-Beware-of-Rampant-Laws-in-Response-to-Rampant-Spending.html

Will everybody happily play along or will some 'FFIs' tell the US take a flying hike?

this refers to US source capital flows,not to ALL foreign income as your title states. It refers to foreigners who invest in US securities and who receive interest,dividends,rents,royalties,etc.

It's quite common for a country to tax interest,dividends,etc paid to foreigners. Many countries do it, including Mexico. A withholding tax is normal,as the paying country assumes a foreigner beyond their jurisdiction is unlikely to file a tax return and pay the tax. So a tax is withheld at source and the taxpayer is required to file for any refund.

The US has had a 30% withholding tax on payments to foreigners for many many years. This legislation only places more burdensome reporting requirements on the withholding agent. Tax treaties with other countries often change the rate to a lower level-10% or zero in most cases.

[Xcalaker]

That is not exactly how I read it.

I think it means that if XZY Bank in Mexico has any US based investments that produce income, dividends, rents, etc.

The US will withhold 30% of that 'income' UNLESS the XZY Bank fully divulges information on US citizens that have accounts with XYZ Bank in Mexico. Or, if you, Mr. Mexico Bank, want to invest in the US, you have to give the US (IRS) the info we want or we'll withhold 30%.

Sounds like a sure fire way to hinder international investment into the USA uh?

[jimmiller]

That is not exactly how I read it.

I think it means that if XZY Bank in Mexico has any US based investments that produce income, dividends, rents, etc.

The US will withhold 30% of that 'income' UNLESS the XZY Bank fully divulges information on US citizens that have accounts with XYZ Bank in Mexico. Or, if you, Mr. Mexico Bank, want to invest in the US, you have to give the US (IRS) the info we want or we'll withhold 30%.

Sounds like a sure fire way to hinder international investment into the USA uh?

I read the memo from Paul Hastings which you attached. It's fairly clear.

[traderspoc]

On March 18th, with little if any pomp and circumstance – downright unnoticed by most – Obama signed off on the US$ 17.5 billion 'Hiring Incentives to Restore Employment Act' (H.R. 2487), in brief 'HIRE'. Amidst a long mire of legal gibberish that few would ever bear the pain of reading, provisions on 'Foreign Account Tax Compliance´ (FATCA) were hidden.

In brief, these provisions require that foreign financial institutions (so called FFI's – and not just banks!) not only withhold 30% of all US source capital flows (supposedly remitting the collection promptly back to the US Treasury) but also to disclose the full details of non-exempt account holders to the US and the IRS.

In order to avoid the 30% withholding tax, an FFI would have to agree to become a QFFI (a Qualified Foreign Financial Institution). Of course, under such circumstances, a QFFI must fully report all "non-exempt US account holders", i.e. give up any and all client confidentiality against US tax authorities

READ MORE HERE:

http://www.paulhastings.com/assets/publications/1473.pdf?wt.mc_ID=1473.pdf

http://www.ballardspahr.com/alertspublications/legalalerts/2010-03-30_fatcahireact.aspx

http://solari.com/blog/?p=6774

A a contrarian view here:

http://www.thedailybell.com/974/Frank-Suess-HIRE-FATCA-QFFI-Beware-of-Rampant-Laws-in-Response-to-Rampant-Spending.html

Will everybody happily play along or will some 'FFIs' tell the US take a flying hike?

in the pdfs attached was a question.

Q 10: What are the penalties for failing to report, as the result of either an accounting or tax-preparer error or a disagreement with the IRS over whether some of the more exotic foreign investments not expressly addressed in the legislation are subject to such reporting?

A: A $10,000 penalty applies if an individual fails to report required information about a foreign reportable asset on his or her tax return as required and additional penalties apply, for a total penalty of up to $50,000, in the case of taxpayer failure to provide information after notification by the IRS. A 40% penalty applies to any tax underpayments due to undisclosed foreign assets.

If you are a US citizen file the FBAR by June 30th 2010, otherwise when the FFI files your name with the IRS in 2012, and the IRS finds you have not reported the assets or income, youe assets will almost all be gone in fines and penalties and taxes due. 30% withholding is the least of your worries.