The intergovernmental agreement (IGA) between Curaçao, a low-tax Caribbean territory, and the United States implementing the US Foreign Account Tax Compliance Act (FATCA) is now in force, reports Curacao Chronicle.
FATCA, enacted by the US Congress in 2010, is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 per cent tax on payments of US-sourced income.
The IGA signed by Curaçao and the US is a “Model 1” IGA. Under Model 1 IGAs FFIs report all FATCA-related information to their own governmental agencies, who then report the FATCA-related information to the IRS. Under Model 2 IGAs FFIs report information directly to the IRS.
The entering into force of the Model 1 IGA between Curaçao and the US means that Curaçao FFIs will be required to report their information to the Curaçao Tax Department who will then automatically exchange the information with the IRS. There is also a provision for the exchange of information to be reciprocal. Before the entry into force of the agreement, Curaçao was deemed by the US as having a FATCA IGA in place in practice, pending the completion of its domestic ratification procedures.