F-A-T-C-A: Nigerian banks are about to debit ‘your’ bank accounts and send ‘your’ details to the US IRS

Some Nigerian banks are sending out emails to their customers informing them of a Foreign Account Tax Compliance Act (FATCA) rule that might warrant a 30% withholding tax on their bank accounts should they fall under the provisions.

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The Foreign Account Tax Compliance Act (FATCA) 2010 is an initiative of the United States Government to promote tax compliance and uncover tax evasion by its citizens/residents and US owned (legal) entities. The Act requires that Foreign Financial Institutions (FFIs) provide information to the United States Internal Revenue Service on accounts maintained for citizens/residents of the US.

As stipulated by FATCA, a 30% Withholding Tax will be imposed on US sourced income paid to any FFI if the FFI fails to comply with FATCA or on an account holder that fails to provide information to determine whether or not they are a US taxpayer (such an individual/institution is termed a Recalcitrant account holder).

In compliance with this Act,  most local Nigerian banks are required to provide information to the United States Internal Revenue Service on individual and corporate customers who qualify.

Those who qualify

Corporate Customers:

• Individual shareholders who qualify under the above conditions and with a minimum of 10% shares in companies who execute transactions with local banks
• Corporate organizations incorporated in the United States with a minimum of 10% shareholding in companies who execute transaction with local banks

Individual Customers who:

• Are US citizens (have a US passport or green card)
• Were born in the US
• Have a home or mailing address in the US
• Have US telephone numbers
• Have standing instructions to transfer funds to US based accounts
• Have Power of attorney or signatory authority granted to person with US address; or
• Are in care-of or hold mail addresses that is sole address of account holder

So basically, for individual who meet the criteria above you are either mandated to file or risk being debited with a 30% WHT. FATCA has been controversial since it was announced by the OBAMA administration instigating a rash of high-profile citizenship renunciation by some Americans. Records show about 3,000 Americans renounced their citizenship in 2013 alone due to FATCA

Why are the banks complying?

Banks have no choice but to comply or face the risk of being excluded from doing any US-based transaction. No financial institution will want to take such a risk considering the interdependence on the US economy by the rest of the world. No less than 80 countries have signed up to FATCA including, Russia and China. Nigeria has also signed up.