How will FATCA affect alternative investment funds?

By: Ian Brown

How will FATCA affect alternative investment funds?

All U.S.-domiciled funds must comply with FATCA while, as a general rule, non-U.S.-domiciled alternative investment funds must enter into a withholding and information sharing agreement with the IRS (after which they will be known as a “participating FFI”) in order to avoid 30 percent U.S. withholding.

In addition to entering into a contractual agreement with the IRS to become a participating FFI,
funds will have certain obligations that include:

  • All funds will be required to perform FATCA investor due diligence procedures to document their FATCA status:
    • Investigate electronically searchable data to produce investors’ FATCA classification
    • Perform a comprehensive investor file review of all historic documents, including a review of anti-money laundering and know-your-client information, in order to validate their FATCA classification
    • Classify new (post 2013) investors for FATCA purposes by reviewing U.S. tax forms and additional documentation and cross-checking these to anti-money laundering and know-your-client information
  • Non-U.S. funds will have certain reporting requirements to the IRS, including:
    • File information reports to the IRS, comprising static, balance and transaction information
    • File certifications that the pre-existing investor procedures have been undertaken
    • Submitting an annual compliance declaration
  • U.S. funds under FATCA may be required to:
    • Prepare U.S. tax forms 1099 and 1042-S in respect of each investor (which is filed with the IRS and sent to each investor)
    • Where applicable, funds must withhold tax on non-FATCA compliant investors at a rate of 30 percent on U.S.-source income and U.S.-source gross proceeds

U.S. funds are subject to FATCA requirements automatically with effect from 1 January 2013.  Non-U.S.-domiciled funds should enter into agreement with the IRS by 30 June 2013, at which point a fund must begin to undertake investor due diligence obligations outlined above. Withholding and reporting obligations should commence on 1 January 2014. Draft regulations were issued in February 2012 and final regulations (and model FFI agreements and revised tax forms) are expected to be issued by Fall 2012.

Meeting your FATCA obligations will require significant time and internal resources. SS&C GlobeOp’s approach to FATCA compliance helps you streamline related processes and minimize operational burden and costs, so you can continue to focus on alpha generation. Our solution for FATCA compliance enables complete lifecycle assessment to identify, manage and report on the FATCA status of investors, allowing funds to ensure compliance while minimizing business and operational risk. The service includes full support for pre-existing individual/entity investor review as well as new account review; rapid solution deployment to get ahead of upcoming deadlines; and packaged web-based solution, available stand-alone or part of SS&C GlobeOp middle- and back-office services.

For more information or a demonstration, click here or email us at

For informational purposes only, and not to be construed as legal or tax advice. Clients and prospective clients are encouraged to consult with their legal and tax advisors on the implications of these and other regulatory requirements.