Cyprus: Cyprus to sign FATCA agreement with US Treasury

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Cyprus: Cyprus to sign FATCA agreement with US Treasury

charalambous.jpg

zambartas.jpg

Katerina A Charalambous


Michalis Zambartas

The Inland Revenue Department of the Republic of Cyprus is expected to sign the Model 1 intergovernmental agreement (IGA) with the US Treasury in accordance with the provisions of the Foreign Account Tax Compliance Act (FATCA). FATCA is a US tax legislation that was enacted in March 2010 to impede non-tax compliance by US taxpayers holding foreign bank accounts and/or substantial interests in foreign entities. It essentially aims to ensure full reporting of foreign financial assets held by US taxpayers. The regulations pursuant to FATCA have a global reach and will impact virtually all multinational organisations operating across every industry. For the implementation of FATCA the US has collaborated with other governments to develop two model IGAs which contemplate that a partner government will require all foreign financial institutions (FFIs) located in its jurisdiction (that are not otherwise exempt) to identify and report information about US bank accounts.

Cyprus will enter into a Model 1 IGA that requires FFIs located in Cyprus such as Cyprus-based banks, custodians, brokers, investment funds, and insurance companies to report all FATCA related information to the Inland Revenue in Cyprus which will in turn report the information to the IRS of the US. More specifically, the participating FFI must perform the appropriate due diligence procedures to determine which of the bank accounts it maintains are:

  • US accounts;

  • Accounts held by recalcitrant account holders, meaning those who failed to provide sufficient information to determine whether they are US persons or whether they are substantially owned by US persons;

  • Accounts held by non-participating FFIs; or

  • Non-US accounts.

FFIs will also be obliged to withhold and pay to the IRS tax equal to 30% with regards to payments that relate to US-sourced income and are made to an account that is held by a recalcitrant account holder or a non-participating FFI. It is also important to note that the penalties for non-compliance with FATCA will include the imposition of a 30% withholding tax on any incoming payments relating to US-sourced income. It is therefore anticipated that financial institutions will have to conform to the new compliance realities and undergo extensive internal research on their clients' accounts to identify US citizens and determine their tax status.

An FFI covered by a Model 1 IGA will not need to sign an FFI agreement, but it will need to register on the IRS's FATCA Registration Portal or file Form 8957. The Cyprus Inland Revenue Department has filed all the required information to the US government for the sign-up of the agreement and according to the officials in the department, the agreement is expected to be finalised within a month. To this extent, FFIs will have to register with the IRS by the end of the year (December 31 2014). Further to the above, it is noted that Model 1 IGAs are reciprocal, requiring the US to provide certain information about residents of the US in exchange for the information provided by the other jurisdiction.

To date the US has signed IGAs with 26 jurisdictions and has reached agreements in substance or is in advanced discussions with many others to achieve effective cross-border tax information reporting, an objective which is also aligned with the European Commission's policy to combat tax evasion.

From a Cypriot perspective this will greatly enhance the profile of Cyprus as a transparent international business centre.

Katerina A Charalambous (katerina.a.charalambous@eurofast.eu) and Michalis Zambartas (michalis.zambartas@eurofast.eu)

Eurofast, Cyprus Office

Tel: +357 22 699 222

Website: www.eurofast.eu

more across site & shared bottom lb ros

More from across our site

Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Gift this article