Foreign Account Tax Compliance Act (FATCA) FAQs

General FATCA questions

FATCA is the acronym for the Foreign Account Tax Compliance Act (FATCA), which is an American law passed in March 2010. FATCA requires reporting
of specified United States (US) persons or entities controlled by specified US persons by certain foreign financial institutions (FFIs – see definition of an
FFI under question 3 of the FATCA for entities section) and possible withholding tax on US source income. Its aim is to identify US persons who may be
using offshore accounts to avoid US taxation on their income and assets.

The South African Government has signed an intergovernmental agreement (IGA) with the Internal Revenue Service (IRS) agreeing to exchange
information provided by financial institutions in South Africa. The IGA has been agreed in substance as if it is enacted. It is expected to be gazetted shortly.

FATCA has been effective since 1 July 2014.

An IGA is a bilateral agreement between a country’s government and the US government that facilitates compliance with FATCA. The model agreements
enable FFIs in the designated jurisdictions to comply with FATCA, especially where privacy laws exist. There are currently two types of IGAs, Model I and
Model II.

A Model I agreement allows FFIs in the country to report to the local country tax authority (in South Africa this is the South African Revenue Service or
SARS), who will then provide the information to the IRS. Each country’s tax authority has a separate Model I agreement with the IRS, which includes
country-specific provisions in addition to simplified due diligence and withholding requirements. Under a Model II agreement, the FFI would report
information directly to the IRS. South Africa has signed a Model 1 agreement with the IRS.

Affected South African financial institutions are required to submit an annual report to SARS on all financial accounts held directly or indirectly by US
persons, which SARS will submit to the IRS.

Momentum has made a commitment to being FATCA compliant and will therefore be reviewing our affected existing client base to confirm the FATCA
status of our clients. Where necessary we may have to contact our clients to obtain further information and documentation.

Our new account opening processes for affected products will also be changing. In some instances they may have been changed already to ensure that
we identify potential specified US persons or entities controlled by specified US persons.

All affected companies within Momentum have registered with the IRS and have obtained global intermediary identification numbers (GIINs).

To comply with the IGA all financial institutions must identify and classify their account holders and report on affected accounts (products and services)
directly or indirectly owned by specified US taxpayers and non-financial foreign entities (NFFEs – see definition of an NFFE under question 7 of the FATCA
for entities section) with controlling specified US persons, non-participating FFIs and undocumented accounts as required.

FATCA compliance requires FFIs, including foreign subsidiaries of US-based organisations, to take the following steps:

  • Identify US reportable accounts and report these annually to the revenue authorities.
  • Identify non-participating financial institutions and report these to revenue authorities from 2016.
  • Register with the IRS to obtain a GIIN.
  • FFIs will not be required to withhold tax from recalcitrant account holders or non-participating FFIs, provided they have given sufficient information
    regarding the account holder to an upstream withholding agent that enables the upstream withholding agent to perform the necessary withholding.

FATCA will impact individual clients in affected products who may be identified as a specified US person for US tax purposes. The legislation will also
impact certain types of businesses, trusts or legal entities (invested in affected products) that are incorporated in the US or have specified US owners
who are regarded as controlling persons.

Clients invested in the following products will be impacted by FATCA:

  • Endowment policies.
  • Voluntary purchased annuities.
  • Other similar voluntary investment products such as units in collective investment schemes or units held in a product provided by a linked investment service provider.
  • Certain retirement funds, ie preservation and retirement annuity funds.
  • Annuities (except voluntary purchased annuities that are in scope).
  • Life insurance policies that are pure risk policies with no cash value.

In terms of the IGA signed between the IRS and the South African Government, Momentum is required to collect additional information from clients to
determine whether they are specified US persons. The additional information includes:

  • certification of tax status (completion of self-certification forms or self-certification sections in new business application forms);
  • a tax identification number (TIN); and
  • certain information that could indicate that the client or the controlling persons of the client are specified US persons.

The burden to prove the tax status of the account holders or clients is placed with the client but financial institutions must apply reasonability tests on the
certifications provided. In respect of clients who are FFIs Momentum is required to obtain their GIIN and verify this to the IRS list or obtain the reason from
the client as to why the FFI doesn’t have a GIIN.

In terms of the IGA signed between the IRS and the South African Government, Momentum is required to report the following information with respect to
all US accounts:

  • The name and address of each of the account holders.
  • A TIN for each account holder that is a US person.
  • An account number.
  • The name and identifying number of the reporting financial institution.
  • An account balance or value from 2015.
  • Income flows and account balance from 2016.
  • Gross proceeds on disposal, income flows and account balance from 2017.
  • All payments made to non-participating financial institutions.
  • Payments made to accounts which are undocumented.

The term US person includes, but is not limited to:

  • a US citizen (including dual citizens);
  • an individual born in the US but resident in another country and who hasn’t given up his or her US citizenship;
  • a person whose parents have permanent domicile and residence in the US;
  • a person residing in the US (resident alien);
  • a green-card holder;
  • certain persons who spend more than 183 days in the US each year; and
  • US corporations, US partnerships, US estates and US trusts.

A specified US person includes a US citizen, resident or green-card holder, corporations, partnerships, estates and trusts formed or incorporated under
US law, other than:

  • a US corporation of which the stock is regularly traded on an established securities market;
  • a US company forming part of the same group of companies as a listed corporation;
  • any US bank under US laws;
  • any state, the district of Columbia, any US territory, any political subdivision of any of the foregoing or any wholly owned agency or instrumentality
    of the foregoing;
  • any US real estate investment trust;
  • any US common trust fund, US securities brokers and US securities dealers;
  • any US organisation exempt from tax under section 501(a) or a US individual retirement plan; and
  • certain US retirement trusts.

The listed excluded entities are regarded as US persons, but not specified US persons, which means that FFIs will not be required to perform any reporting
or withholding on them.

A recalcitrant account holder is any account holder who:

  • fails to comply with reasonable requests for information necessary to determine if the account is a US account, including self-certification of their tax status;
  • fails to provide the name, address and TIN of each specified US person or owner of a US owned legal entity or business; or
  • fails to provide a waiver of any foreign law that would prevent an FFI from reporting the information required under FATCA.

Recalcitrant account holders will be reported as part of the FATCA reporting to SARS.

The definition of a controlling person in the IGA refers to the financial action task force (FATF) definition of a controlling person, hence an interest by means
of voting rights or profit share or participation rights of more than 25% in any arrangement other than a trust.

In the case of a trust the controlling person is defined as the settlor or founder, trustees, protector (if any), beneficiaries or other persons exercising effective
control over the trust.

A withholdable payment includes dividends, interest, any other income and gross proceeds from sale or redemption of property from a US source.

In general a withholding agent is required to withhold 30% on a withholdable payment made to a foreign financial institution (FFI) or to a non-financial
foreign entity (NFFE), unless the FFI or NFFE meets certain requirements.

In terms of the IGA South African financial institutions are required to report all specified US persons to SARS, but are not currently required to withhold on
any payments of a US source to account holders, provided they supply the necessary information regarding the account holder to the upstream withholding
agent.

FATCA compliance is an ongoing process. FATCA information and certification of the tax status of clients are obtained at new business stage for the
affected products for new clients taken on. In respect of existing clients of Momentum who were clients prior to the FATCA effective date, certification of
their tax status will be requested in cases where certain information indicating that they may be a US person or have US controlling owners is found (US
indicia). If account information changes or if US indicia are identified by Momentum, we are required to validate and possibly recertify client details to
ensure compliance in terms of the FATCA legislation.

To self-certify is to confirm in writing that the account holder:

  • is either a specified US person or not; or
  • is a passive NFFE that is controlled by specified US persons or not; or
  • is an FFI that has a GIIN or a reason why it has no GIIN.

The self-certification can be obtained in the following ways:

  • Included as part of the new business application form for affected products from 1 July 2014.
  • The IRS’s W-8BEN (non-US individuals), W-8BEN-E (non-US entities) or W9 (US persons only) forms may be used.
  • Momentum’s own self-certification forms, which contain substantially similar questions and declarations to that of the abovementioned IRS forms,
    can be used.

For account holders who are individuals:

The self-certification form must be signed by the client who is the account holder of an FFI. The self-certification form can also be signed by an agent with
legal authority to act on the person’s behalf. If the self-certification form is completed by an agent acting under a duly authorized power of attorney for the
beneficial owner or account holder, the form must be accompanied by the power of attorney in proper form or a copy thereof specifically authorizing the
agent to represent the principal in making, executing, and presenting the form. The self-certification form cannot be signed by a client’s financial adviser
unless the financial adviser has the necessary power of attorney.

For account holders who are an entities:

The self-certification form must be signed and dated by an authorized representative or officer of the account holder of an FFI requesting this form. An
authorized representative must have the legal capacity to sign for the entity that is the beneficial owner of the income.

No. Completed and signed self-certification forms that are scanned and attached to an email which is sent to us at fatca@momentum.co.za will be
accepted by Momentum.

In this case Momentum will have insufficient information to determine whether or not the account holder is a US person as defined or in the case of a
foreign entity that is an account holder, whether the entity has controlling US owners. Momentum will therefore need to report the client to SARS for onward
reporting to the IRS.

Should we not receive the self-certification form by the date stipulated by us or your financial adviser, we will not have sufficient information to determine
whether the account holder is a US person and will have to report the account holder to SARS for onward reporting to the US. If the self-certification is
then provided to us at a later date, there are two possible outcomes:

  • If it is provided to us after the cut-off date but before we have drawn our client data to report to SARS, there may still be time to amend the account
    holder’s FATCA status and the client then may not be reported to SARS; or
  • we receive the self-certification form after we have reported or drawn the data for reporting to SARS. In this case we will have to report the account
    holder even if the account holder and the controlling persons are not reportable. For the next round of reporting, if there has not been a change in
    circumstances, we will inform SARS that the account holder is no longer reportable.

No, the definition of an account holder in the IGA may include persons other than the account holder, such as beneficiaries and annuitants, depending on
the nature and rules of the affected product and to whom payments are made.

FATCA for individual clients

New individual accounts opened on or after 1 July 2014:

For all new business in affected products* that was obtained by Momentum from 1 July 2014, upon account opening, Momentum must obtain a selfcertification,
which may be part of the account opening documentation (ie application form) or a separate self-certification form, which allows Momentum to
determine whether the account holder is a resident in the United States (US) for tax purposes (for these purposes, a US citizen is considered to be resident
in the USA for tax purposes, even if the account holder is also a tax resident of another jurisdiction). Momentum also needs to confirm the reasonableness
of the self-certification based on the information it obtained in connection with the opening of the account. The Internal Revenue Service (IRS) has issued
a list of seven criteria (US indicia) that may require Momentum to request further information to determine whether you are a US person under FATCA.
These are the following:

  • US citizenship or residence
  • US place of birthUS address, including US postal boxes
  • US telephone number
  • Repeat payment instructions to pay amounts to a US address or account
  • Current power of attorney or signatory authority granted to a person with a US address
  • In care of or Hold mail address, which is the sole address for the account holder

In determining whether an individual’s self-certification of his tax residency is reasonable, Momentum will need to check whether any of the above US
indicia are present in the information obtained from the client at account opening and compare this to the client’s tax residency certification. Should
conflicting data exist, ie the client certifies in his or her application form that he or she is not tax resident in the US, but has a US place of birth, the client
will need to complete another self-certification form and/or provide Momentum with supporting documentation to prove to Momentum that he or she is not
tax resident in the US.

Momentum has updated its new business application forms to obtain the self-certification from clients as well as the US indicia in the application forms.
In cases where application forms were not updated from 1 July 2014, or where old application forms were used or new application forms were used but
the necessary information was not completed, Momentum will be contacting financial advisers and/or clients and requesting the clients to complete the
self-certification form. Should Momentum not receive the completed self-certification form back from a client, the client will unfortunately be reported to the South African Revenue Service (SARS) as a recalcitrant account holder for onward reporting to the IRS. Clients who identify themselves as US persons
on the self-certification or application forms, will be reported to SARS as US reportable accounts for onward reporting to the IRS. Clients who identify
themselves as non-US persons will not be reported to SARS.

Momentum has an obligation to monitor the tax residency and US indicia of clients for changes in circumstances and should circumstances of the client
change, for example a change in address from South Africa to the US, the client will be asked to self-certify again.

*Affected products for new individuals include the following:

  • Endowment policies above $50 000.
  • Voluntary purchased annuities.
  • Other similar voluntary investment products such as units in collective investment schemes or units held in a product provided by a linked investment service provider.

Existing individual accounts held as of 30 June 2014:

Individual accounts in the affected products that exceed $50 000 as of 30 June 2014 or endowment policies that exceed $250 000 but don’t exceed $1
000 000 are defined as low-value accounts. No review is required for accounts below the $50 000 or $250 000 threshold.

For low-value accounts Momentum is required to perform an electronic record search. If US indicia are found in the electronic record search, then
Momentum is required to obtain a self-certification from that client to confirm whether or not the client is a US person or not. Supporting documentation
may be required to be provided by the client.

For high-value accounts in the affected products that exceed $1 000 000 Momentum is required to perform an electronic record search and possibly also
a paper record search and relationship manager enquiry. If no US indicia are found as a result of these enquiries and searches, then no further action is
required from either Momentum or the client. If US indicia are found, then Momentum is required to obtain a self-certification from the client to determine
whether or not the client is a US person. Supporting documentation may also be required from the client.

Momentum is also required to monitor change in circumstances with respect to existing clients, and where US indicia are found by Momentum, we are
required to obtain a self-certification from the client and may also be required to obtain supporting documentation.

The rules require FFIs to search for a number of US indicia that may indicate that the account holder is a potential US person. If any of these indicia are
present, Momentum has an obligation to request further information from the client to clarify his or her FATCA status. In addition, the ensuing Automatic
Exchange of Information will require Organisation for Economic Co-operation and Development (OECD) countries to obtain similar information about the
tax residency status of all their clients.

If you are a US person, you will be required to provide Momentum with additional information and documentation. You will need to provide Momentum with
a self-certification that you are a US person and you will need to provide your US TIN.

Momentum is required to report your account information to SARS on an annual basis, which will be passed on to the IRS.

As a US green-card holder or citizen or resident , you are a US taxpayer and, by US law, you are already required to disclose the same and more
information directly to the IRS by filing in a Form 8938 (Statement of Specified Foreign Financial Assets) and a Form TD F 90-22.1 (Report of Foreign Bank
and Financial Accounts). FATCA is a supplemental way for the IRS to obtain the same information about you.

A joint account that has one US owner is treated as a US account and the entire account balance is attributable to each joint owner. For example, if your
account has a balance of $500 000 and you have a South African and specified US person holding the account, then the US person is reportable with a
balance of $500 000.

No. Only specified US persons are subject to FATCA. However, Momentum may request additional information from you to determine whether or not you
are a specified US person as defined.

Yes, your account will be subject to the rules of FATCA if the balance exceeds a certain amount.

FATCA for entities

The term entity for the purposes of FATCA means anything other than a natural person.

For persons other than individuals, a US person includes among others a company, corporation, trust or association organised in the US or under the
laws of the US.

An FFI is a foreign financial institution. That is, any non-US entity that is a depository institution, custodial institution, investment institution or specified
insurance company. These are entities that, broadly speaking, provide the following services to clients:

  • Accepts deposits from banking or similar business;
  • holds financial assets for the account of others;
  • is engaged in the business of investing, reinvesting, or trades in securities or commodities; or
  • issues or is obligated to make payments with respect to cash value insurance contracts or annuity contracts.

An FFI that enters into an FFI agreement with the IRS is referred to as a participating foreign financial institution (PFFI). An FFI that doesn’t enter into an
agreement with the IRS is referred to as a non-participating foreign financial institution (NPFFI), and is subject to withholding under FATCA.

In order to comply with FATCA, an FFI will enter into an FFI agreement with the IRS to determine which accounts are US accounts, and conducts annual
reporting of those accounts.

An FFI agreement is an agreement between the IRS and a participating FFI. The IGA includes the following obligations:

  • Obtain information on account holders that is necessary to determine if accounts are US accounts.
  • Comply with any required due diligence or verification procedures.
  • Report information on US accounts to the IRS on an annual basis.

A foreign entity that is not a financial institution is a non-foreign financial entity (NFFE).

There are two types of NFFEs – active NFFEs and passive NFFEs. If your entity is classified as a passive NFFE, you have to certify whether any of your
controlling persons are specified US persons or not.

An NFFE that conducts an active trade (active NFFE) and earns income mainly from business activities as opposed to earning income only from
investment income such as dividends and interest is an active NFFE.

An active NFFE is a category of an excepted NFFE that only needs to certify that it is an excepted NFFE. It doesn’t need to report on any substantial US
owners it may have and there will not be any withholding upon such an entity.

A passive NFFE is an NFFE that earns more than 50% of its income from passive investments and more than 50% of its assets for the last financial year
consist of passive investments.

Passive investment income includes the following types of income:

The portion of gross income that consists of:

  • dividends, including substitute dividend amounts;
  • interest;
  • income equivalent to interest;
  • rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the NFFE;
  • annuities;
  • excess of gains over losses from the sale or exchange of property that gives rise to passive income as described in this definition;
  • the excess of gains over losses from transactions (including futures, forwards, and similar transactions) but not including:
  • any commodity hedging transaction; or
  • active business gains or losses from the sale of commodities;
  • the excess of foreign currency gains over foreign currency losses;
  • net income from notional principal contracts;
  • amounts received under a cash value insurance contract ; or
  • amounts received by insurance companies in connection with its reserves for insurance and annuity contracts.

An entity will be a US reportable account if:

  • the entity itself was incorporated or organised in the US;
  • the entity is a passive NFFE with one or more controlling US persons (owners);
  • the entity is a non-participating FFI; or
  • the entity is undocumented.

The process for the identification of US reportable accounts held by entities differs in respect of new clients taken on from 1 July 2014 and existing clients
that were on Momentum’s books as at 30 June 2014.

In respect of new entities taken on from 1 July 2014:

For new entities taken on from 1 July 2014 in the affected products* upon account opening, Momentum must obtain a self-certification, which may be part
of the account opening documentation (ie application form) or a separate self-certification form that allows Momentum to determine whether the account
holder is a resident in the US for tax purposes or in the case of a non-US entity whether the entity is an FFI or a passive NFFE with controlling persons
who are US persons.

Momentum also needs to confirm the reasonableness of the self-certification based on the information obtained by Momentum in connection with the
opening of the account. The IRS has noted two US indicia for entities that may require Momentum to request further information to determine whether the
entity is a US person under FATCA. These are:

  • the place of incorporation of the entity; and
  • the physical address of the entity.

The self-certification from the account holder must determine the following:

  1. Whether the entity itself is a US person or not. If the entity is a US person, the entity is a US reportable account.
  2. If the entity itself is not a US person, Momentum needs to determine whether the entity is an NFFE or FFI.
  3. If the entity is an FFI, the entity must provide Momentum with its GIIN. If the entity has no GIIN, the entity must provide the reason it has no GIIN.
    If the reason that the entity has no GIIN is due to the fact that it isn’t registered with the IRS and is a non-participating FFI, Momentum will need to report the payments it makes to this FFI to SARS for onward reporting to the IRS.
  4. If the entity is an NFFE, Momentum must determine whether the entity is an active or passive NFFE. If the entity is an active NFFE, the entity is not
    a US reportable account. If the entity is a passive entity, Momentum must determine whether the entity has one or more US controlling persons. If
    the entity is a passive entity with one or more controlling US persons, then both the entity and the controlling US persons are reportable to SARS for onward reporting to the IRS. If the passive NFFE has no US controlling persons, the entity and the owners are not reportable.

Momentum is also required to monitor any change in circumstances from the take-on of the new business client, and where US indicia are subsequently
found, Momentum is then required to obtain a self-certification form from the client and the client may need to provide supporting documentation. 

Affected products for new entities include the following:

  • Endowment policies above $50 000.
  • Voluntary purchased annuities.
  • Other similar voluntary investment products such as units in collective investment schemes or units held in a product provided by a linked investment service provider.

Pre-existing entity accounts as at 30 June 2014:

Pre-existing entity accounts that are not subject to review:

Accounts in affected products that don’t exceed $250 000 are not required to be reviewed until they exceed $1 000 000.

Pre-existing entity accounts subject to review (low-value accounts):

Entity accounts in affected products with a balance that exceeds $250 000 as of 30 June 2014 and accounts that don’t exceed $250 000 at 30 June 2014
but exceeds $1 000 000 at 31 Dec 2015 must be reviewed.

The review process for pre-existing entity accounts that are subject to review is as follows:

  1. Momentum is required to review information available on our electronic records to identify any US indicia that would suggest that the entity is a US person. If US indicia are identified, a self-certification form will need to be completed in respect of the entity or Momentum must look at information that is publicly available to determine whether the entity is a US person or not. If the entity is a US person, then the entity is a reportable US account.
  2. If the entity itself is not a US person, Momentum needs to determine whether the entity is an NFFE or FFI.
  3. Momentum will review information available on electronic record that may suggest that the entity is an FFI or registered deemed compliant FFI and
    must then verify the entity’s GIIN on the IRS list. If the entity is an FFI with a GIIN, the entity is not reportable. If Momentum cannot verify the GIIN, then Momentum must ask the FFI to complete a self-certification form that specifies the type of FFI and the reason it is not registered with the IRS. In this case the payments to the entity may or may not be reportable.
  4. If the information on our system suggests that the entity is an NFFE, Momentum must determine whether the entity is an active or passive NFFE. If the entity is an active NFFE, the entity is not a US reportable account. If the entity is a passive entity, Momentum must determine whether the entity has one or more US controlling persons. If the entity is a passive entity with one or more controlling US persons, then both the entity and the controlling US persons are reportable to SARS for onward reporting to the IRS. If the passive NFFE has no US controlling persons, the entity and the owners are not reportable. If Momentum has insufficient information to determine whether the entity is an active NFFE or a passive NFEE with one or more controlling US persons, we must obtain a self-certification form from the client.

The review of the above low-value accounts must be completed by 30 June 2016.

If any financial account doesn’t exceed $250 000 at 30 June 2014 but exceeds $250 000 by 31 December 2015 or any subsequent year, it must be
completed within six months after the end of the calendar year in which it exceeds $1 000 00.

No. Any entity that is controlled by specified US persons, even if not a US entity, is affected by FATCA. If your entity is a passive NFFE you have to certify
whether you have any substantial US owners who control the entity. The objective is to identify specified US persons who exercise control over particular
non-US entities. Your entity may be contacted to provide additional information to assist in determining the FATCA status of your entity and whether any
reporting is required on your controlling persons who are specified US persons. In addition, if the entity is a non-US entity that is an FFI, we require your
GIIN or the reason why the entity doesn’t have a GIIN.

The rules require FFIs to search for a number of US indicia, which may indicate that the account holder is a potential US person. If any of these indicia are
present, Momentum has an obligation to request further information from the client to clarify their FATCA status.

For non-US entities we are also required to determine whether the entity is an FFI or NFEE. In the case of a passive NFFE legislation requires us to
establish whether any of the shareholders or controlling persons are specified US persons, in which case the account is considered to be a reportable
account. If the entity is an FFI, we are required to obtain the GIIN of the entity or the reason it has no GIIN.

If you are a legal entity that is classified as a specified US person, you will be required to provide Momentum with a self-certification and/or additional
information and documentation.

Momentum is required to report your account information to the revenue authorities (SARS) on an annual basis, which will be passed on to the IRS.

No. However, Momentum may be required to obtain a self-certification from the entity and/or additional information on the entity’s or controlling person’s
tax status to ensure that the entity is not subject to FATCA.

If the entity is a passive NFFE, the entity and the controlling persons will be subject to FATCA and additional information will be required and the account
will be reportable.

Yes, you are likely required to register with the IRS as a registered deemed-compliant foreign financial institution. In this case you will need to provide
Momentum with your GIIN.

You may be subject to FATCA if you issue cash value insurance contracts (ie endowment policies) or annuities. We suggest that you contact your tax
advisor to establish whether you are regarded as an FFI for FATCA purposes.

Yes, but the compliance burden may be significantly reduced if you meet certain criteria such as:

  • investor-type restrictions (certain qualified institutional investors only);
  • distribution restrictions (only institutional distributors can sell interests in the fund and cannot sell to US investors); or
  • you are “owner documented”.

In other cases the investment funds may be sponsored entities where reporting to the revenue authorities is performed by the sponsoring entity who could
be the management company.

Certain types of pension plans are exempt from FATCA provided they meet the required criteria.