FATCA in the UK—Employee incentive arrangements and the UK:US IGA
FATCA in the UK—Employee incentive arrangements and the UK:US IGA

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • FATCA in the UK—Employee incentive arrangements and the UK:US IGA
  • Background to FATCA
  • How FATCA can affect UK employee incentive arrangements
  • Investment entities
  • Custodial institutions
  • Trusts and trustees
  • Financial accounts
  • Application to frequently used employee incentive arrangements
  • Reporting obligation
  • Practical issues to be considered when preparing documentation

This Practice Note provides a broad overview of the application of Foreign Account Tax Compliance Act (FATCA) to employee incentive arrangements in the UK.

After a brief outline of the general background to FATCA, this Practice Note considers:

  1. how FATCA can affect UK employee incentive arrangements, and

  2. some of the practical issues to be considered when preparing documentation relating to employee incentive arrangements

Background to FATCA

FATCA is so called because it derives from the Foreign Account Tax Compliance provisions contained in the United States Hiring Incentives to Restore Employment (HIRE) Act 2010.

The main FATCA provisions are now contained in Chapter 4 of Subtitle A of the US Internal Revenue Code (the Code).

The aim of FATCA is, broadly, to deter and reduce tax evasion by US taxpayers using foreign (ie non-US) accounts to hide income and assets from the Internal Revenue Service (IRS).

Broadly, FATCA requires financial institutions (FIs) outside the US (foreign financial institutions) to report to the IRS information on their US account holders.

If the FI fails to comply with the FATCA reporting requirements, it can, depending on the jurisdiction in which it is resident, be subjected to a 30% US withholding tax on certain US source withholdable income (not just the US source income attributable to its US account holders).

For a general summary of FATCA in US law, see