The US Treasury Department recently introduced new regulations concerning the reporting of taxes by charitable foundations in the UK that accept US-based businesses as trustees.
The complex regulations have been re-written as part of new legislation for the Foreign Account Tax Compliance Act (FATCA) which rules on banks and financial accounts held by charities. The US Treasury Department will be issuing the relevant documentation to all concerned parties to replace the existing laws.
To prepare for the changes the UK government is helping charities by implementing an inter-governmental agreement (IGA) which modifies the amendments and puts them into layman terms rather than sifting through the 532 page guidelines.
Changes to FATCA rules
The gravest changes to come from the new regulations is a new reporting system for US companies donating to overseas charities and organizations that are liable for taxes in the US because passive income came from a US source.
Under the IGA administered by the UK government and HMRC charities will be deemed compliant if they are:
- Registered with the Charity Commission
- Registered with HMRC as a charity
- Registered with the Scottish Charitable Regulator
- An amateur sports club registered with HMRC
If you are a trustee of a charitable foundation in the UK you should be prepared for more paper work to satisfy US tax withholding. If you receive a direct investment from a US regulated company you should complete FATCA form W8 which attests you are equivalent to a US non-profit organization.
Complications arise under the IGA if your charity is not based in the UK. For example, international charities have locations in several countries whereby you will have to provide evidence that it qualifies as a resident of the country in which it is situated. However, given the FATCA is going global the likelihood is the same rules will apply.
If you qualify for FATCA rules under the IGA, the good news for UK charities is they do not need to register with the IRS. All you need to do is file the W8EXP or W8BEN-E to the bank or financial institute the overseas transaction came through.
Tax regulations involving charities and overseas investors is a complex issue and can easily incur a fine if you do not know what to do. When sophisticated new laws are introduced and extracting for ease of reference it is important to know pre-existing laws that may impact on the information you provide in your tax return form.
If you run a charity in the UK and need advice about your potential tax liabilities when dealing with US trustees, or any other tax advice in relation to tax and accountancy issues contact a friendly and knowledgeable member of our bright, dynamic team by calling 08000 235 234 or email firstname.lastname@example.org today.