Cayman Islands to Adopt FATCA Model 1 IGA

The Cayman Islands Government (CIG) announced on 15 March 2013 its intention to adopt a Model 1 intergovernmental agreement (IGA) in response to the U.S. Foreign Account Tax Compliance Act (FATCA).

It was also confirmed by the CIG that a similar arrangement will apply for the automatic exchange of certain information with the United Kingdom.

The Model 1 IGA is an agreement between governments for automatic exchange of tax related information. For the Model 1 IGA, relevant financial institutions domiciled in the Cayman Islands will not be required to sign an agreement with the United States Internal Revenue Service (IRS) but instead these financial institutions will be required to report FATCA Information to the CIG, which will then be responsible for communicating this information to the IRS. The alternative Model 2 IGA requires relevant financial institutions to sign up to individual agreements with the IRS and to relay the tax related information directly to the IRS.

The decision to adopt a Model 1 IGA is good news for financial institutions, investment funds, structured finance and securitisation vehicles domiciled in the Cayman Islands as it will simplify their FATCA compliance requirements and provided they comply with Cayman Islands law and regulations enacted to implement the Model 1 IGA, they will:

1. be treated as being compliant with FATCA;
2. not be subject to withholding tax (unless they are opted into the U.S. qualified intermediary regime); and
3. be considered “registered deemed-compliant” foreign financial institutions.

If you have any questions regarding the matters covered in this publication, please contact the Attorney below or your usual Loeb Smith & Brady contact:

Daniel Loeb
+44 207 183 7966
daniel.loeb@loebsmith.com