CRS and FATCA glossary

Central Bank

An institution that is by law or government sanction the principal authority, other than the government of the country itself, issuing instruments intended to circulate as currency. Such an institution may include an instrumentality that is separate from the government of the country, whether or not owned in whole or in part by the country.

Certified Deemed‐Compliant FFI

A Foreign Financial Institution that is not required to register with the IRS and certifies its status by providing a withholding agent with a valid Form W-8. This includes non-registered local banks, retirement plans, non-profit organisations, Foreign Financial Institutions with only low-value accounts, and certain owner-documented FFIs.

Common Reporting Standard (CRS)

The Common Reporting Standard (CRS) is a global reporting framework under which participating countries will exchange financial account information. CRS comes into effect on 1 July 2017 in Hong Kong. The purpose of CRS is to give participating countries transparency about the financial assets that their residents hold offshore.

Controlling Person

The term Controlling Person means the natural person(s) who exercise control over an Entity. In the case of a trust, such term means the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(is) or class(is) of beneficiaries, and any other natural person(s) exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. Where no natural person(s) is identified as exercising control of the Entity, the Controlling Person(s) of the Entity will be the natural person(s) who holds the position of senior managing official. The definition of a Controlling Person corresponds to the term “beneficial owner” as described in Recommendation 10 and the Interpretative Note on Recommendation 10 of the Financial Action Task Force Recommendations (as adopted in February 2012).

Custodial Institution

An entity that holds, as a substantial portion of its business, financial assets for the account of others. An entity holds financial assets for the account of others as a substantial portion of its business if the entity’s gross income attributable to the holding of financial assets and related financial services equals or exceeds 20% of the entity’s gross income during the shorter of:

• it last three accounting periods; or
• The period since the establishment of the entity.

Deemed Compliant FFI

An FFI that is exempt from withholding without entering into an IRS agreement, including:

• Registered deemed-compliant FFIs;
• Certified deemed-compliant FFIs;

Depository Institution

An entity that accepts deposits in the ordinary course of a banking or similar business. For example, a bank.

Entity

A legal person or a legal arrangement, such as a corporation, organisation, partnership, trust or foundation. It does not include a Sole Trader, who are treated as Private Individuals under CRS/FATCA.

Excepted Foreign Financial Institution (FFI)

Entities which are excluded from the FFI definition and not subject to withholding including:

• Holding companies engaged in non-FI business
• Start-up companies for non-financial business
• Liquidating or reorganizing non-financial entities
• Group hedge/financial company which is non-financial and restricted to affiliates
• Organised in US Territory

Excepted Non-Financial Foreign Entity (Excepted NFFE)

An NFFE that is a:

(A) Publically Traded Corporation; OR

(B) Affiliate of Publically Traded Corporation; OR

(C) Territory NFFE; OR

(D) Holding, Treasury, or Captive Finance Company for Non‐Financial Group; OR

(E) Non‐Financial Start‐up Company; OR

(F) Non‐Financial Entity in Liquidation or Bankruptcy; OR

(G) Inter‐Affiliate FFI; OR

(H) Non‐Profit Organisation.

Any other specifically identified class, including those posing a low risk of tax evasion, as determined by the IRS.

Exempt Beneficial Owner

The term Exempt Beneficial Owner means any of the following persons:

(A) Any Foreign Government, any political subdivision of a Foreign Government, or any wholly owned agency or instrumentality of any one or more of the foregoing; OR

(B) Any International Organisation or any wholly owned agency or instrumentality thereof; OR

(C) Any Foreign Central Bank of Issue; OR

(D) Any Government of U.S. Territory; OR

(E) Certain Retirement Funds; OR

(F) Entities wholly owned by one or more other Exempt Beneficial Owners; OR

(G) In addition, an Exempt Beneficial Owner includes any person treated as an Exempt Beneficial Owner pursuant to a Model 1 IGA or Model 2 IGA.

Financial Account

A Financial Account is an account maintained by a Financial Institution and includes: depository accounts, custodial accounts, equity and debt interest in certain investment entities, cash value insurance contracts and annuity contracts.

Financial Institution

There are 4 types of financial institution:

1. Custodial Institution;
2. Depository Institution;
3. Investment Entity;
4. Specified Insurance Company.

Foreign Account Tax Compliance Act (FATCA)

Legislation enacted by the Hong Kong that primarily aims to prevent tax evasion by US taxpayers via non-US financial institutions and offshore investment instruments by imposing certain due diligence and reporting obligations on foreign (that is, non-U.S.) Financial Institutions, notably the obligation to report U.S. citizen or U.S. tax-resident Account Holders to the U.S. Internal Revenue Service (IRS).

Foreign Financial Institution (FFI)

Any Non-U.S. Entity that:

• Accepts deposits in the ordinary course of banking or a similar business such as banks and credit unions.
• Holds financial assets for the account of others as a substantial portion of its business such as brokerages or custodians.
• Is engaged, or holding itself out as being engaged, primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest. This includes a futures or forward contract or option in such securities, partnership interests, or commodities such as mutual funds, private equities and hedge funds.

Form W‐8

A US withholding certificate (W-8 series of forms) with an Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) in order to claim an exemption from or reduction in withholding. The specific W-8 form used by the international vendor depends on the type of payment being paid and the status of the business itself.

Form W‐9

The term Form W‐9 means the form on which a Payee certifies that they are a U.S. Person.

Global Intermediary Identification Number (GIIN)

GIIN are used by reporting Financial Institutions to uniquely identify themselves to withholding agents and tax administrations for FATCA reporting. Financial Institutions can obtain a GIIN from the China’ Internal Revenue Service (IRS).

Governmental Entity

The government of a country, any political subdivision of a country (which includes a state, province, county, or municipality) or any wholly owned agency or instrumentality of a country.

Indicia

Any of the following which may indicate foreign tax residence for an individual:

• US citizenship
• Permanent residence overseas
• Overseas address (resident or correspondence)
• US place of birth
• Overseas telephone number
• Power of Attorney or signatory authority granted to person with overseas address
• Standing instructions to transfer funds to an account maintained overseas or directions received from an overseas address.

With respect to entities:

• Domicile in a jurisdiction;
• Place of effective management or incorporation/organisation of an entity; etc

Intergovernmental Agreement (IGA)

A government may enter into a bilateral agreement with the U.S. to simplify reporting compliance and avoid FATCA withholding. Under a Model 1 IGA, Foreign Financial institutions (FFIs) in partner jurisdictions report information on U.S. account holders to their national tax authorities, which in turn will provide this information to the IRS. Under a Model 2 IGA, FFIs report account information directly to the IRS.

Internal Revenue Service (IRS)

A U.S. government agency responsible for the collection of taxes and enforcement of tax laws.

International organisation

Any international organisation or wholly owned agency or instrumentality thereof. This category includes any intergovernmental organisation (including a supranational organisation) (1) that is comprised primarily of governments; (2) that has in effect a headquarters or substantially similar agreement with the country; and (3) the income of which does not inure to the benefit of private persons.

Investment entity

Either:

1. • Trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange,interest rate and index instruments; transferable securities; or commodity futures trading;
   • Individual and collective portfolio management; or
   • Otherwise investing, administering, or managing funds, money, or financial assets on behalf of other persons;
2. An entity the gross income of which is primarily attributable to investing, reinvesting, or trading in financial assets, if the entity is managed by another entity that is a type Custodial Institution, Depository Institution, Investment Entity (under paragraph A above) or Specified Insurance Company. Note: An investment entity includes an entity that functions (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.

Listed Corporation

A corporation the stock of which is regularly traded on one or more established securities markets or any corporation that is a Related Entity of a corporation described here.

Non-Financial Entity (NFE)

Any entity that is not a Financial Institution.

Non-Participating Foreign Financial Institution (Non-Participating FFI)

A Foreign Financial Institution that does not enter into an agreement with the IRS and is not deemed compliant or excepted.

Non-profit organisation

Any entity is considered a non-profit organisation if the entity has a religious, charitable, scientific, artistic, cultural, athletic, or educational purpose, or the entity is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare that was established and is operated in its country of residence.

Additionally the entity must fulfil the following conditions:

• the entity is exempt from income tax in its country of residence;
• the entity has no shareholders or members who have a proprietary or beneficial interest in the income or assets of the entity;
• the applicable laws of the entity’s country of residence or the entity’s formation documents do not permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity. An exception is made for income or assets used:
  • pursuant to the conduct of the entity’s charitable activities,
  • as payment of reasonable compensation for services rendered, or
  • as payment representing the fair market value of property which the entity has purchased.

The applicable laws of the entity’s country of residence or the entity’s formation documents require that upon the entity’s liquidation or dissolution, all of its assets be distributed to a governmental entity or other non-profit organisation.

Non‐Specified U.S. Entity / Non‐Specified U.S. Person

Any U.S. Entity which meets the following definitions:

1. U.S. Publically Traded Corporation; OR
2. U.S. Affiliate of Publically Traded Corporation; OR
3. U.S. s501(a) Organisation; OR
4. U.S. Government; OR
5. U.S. State; OR
6. U.S. Real Estate Investment Trust; OR
7. U.S. Regulated Investment Company; OR
8. U.S. Common Trust Fund; OR
9. U.S. Tax Exempt Trust (s644(c), or s49479(a)(1)); OR
10. U.S. Securities, Commodities, Derivative Dealer; OR
11. U.S. Broker; OR
12. U.S. Tax Exempt Trust (s403(b), or s457(g))

Non-U.S. Entity

An Entity that is not a U.S. Person.

Owner Documented Foreign Financial Institution (Owner Documented FFI)

An Entity that is not a U.S. Person.

Participating Country

A Participating Jurisdiction means a jurisdiction with which an agreement is in place pursuant to which it will provide the information required on the automatic exchange of financial account information set out in the CRS or FATCA and that is identified in a published list.

Participating Foreign Financial Institution (Participating FFI)

FFI that enters into an agreement with the IRS to undertake certain due diligence, withholding and reporting requirements for US account holders.

Participating Jurisdiction

See Participating Country.

Passive Income

Passive income is that portion of gross income that consists of:

• dividends and dividend substitute payments (income equivalent to dividend);
• interest and 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 NFE;
• annuities;
• income from swap-contracts;
• rental income of real estate property provided that this income can be obtained by performing little to no activity.

The above list is not exhaustive. A complete overview of passive income can be found on www.oecd.org.

Passive Non Financial Entity (Passive NFE)

A Passive NFE is any entity that does not classify as:

1. A Financial Institution; and
2. An Active NFE; and
3. A Professionally managed investment entity not tax resident in a participating country

Passive Non Financial Foreign Entity (Passive NFFE)

The term Passive NFFE means an NFFE other than an Excepted NFFE, a Section 501(c) Organisation or Active NFFE. Passive NFFE (U.S. Owned) have one or more Substantial U.S. Owners and Passive NFFE (Non U.S. Owned) have no Substantial U.S. Owners.

Qualified Intermediary (QI)

A person that is a party to a withholding agreement with the IRS and such person is:

1. A Foreign Financial Institution or a foreign clearing organisation, other than a U.S. Branch or U.S. office of such institution or organisation; OR
2. A Foreign Branch or office of a U.S. Financial Institution or a Foreign Branch or office of a U.S. clearing organisation; OR
3. A Foreign Entity for purposes of presenting claims of benefits under an income tax treaty on behalf of its shareholders; OR
4. Any other person acceptable to the IRS.

Registered Deemed Compliant Foreign Financial Institution (Registered Deemed Compliant FFI)

An FFI that registers with the IRS to declare its status. This includes certain local banks, non-reporting members of participating FFI groups, qualified collective investment vehicles, restricted funds, and FFIs that comply with FATCA requirements under an agreement between the US and a foreign government.

Reportable Account

An account held by one or more Reportable Persons or by a Passive NFE with one or more Controlling Persons that is a Reportable Person. This term is equivalent to "U.S. Reportable Account" under FATCA.

Reportable Person

A Reportable Person is defined as an individual who is tax resident in a Reportable Jurisdiction under the tax laws of that jurisdiction. Dual resident individuals may rely on the tiebreaker rules contained in tax conventions (if applicable) to solve cases of double residence for purposes of determining their residence for tax purposes.

Reporting Hong Kong's Financial Institution

Equivalent to Reporting Financial Institution (RFI) under CRS.

Reporting Financial Institution (RFI)

Equivalent to Reporting Hong Kong's Financial Institution under FATCA.

Self Certification

A declaration by a private individual or entity about their foreign tax residency status and associated information.

Settlor

The settlor's function is to give the assets to the trustee to hold for the benefit of the trust's beneficiaries on the terms and conditions set out in the trust deed.

Specified U.S. Entity

The term Specified U.S. Entity means any U.S. Entity which cannot be identified as a Non‐Specified U.S. Entity or as a U.S. Financial Institution.

Specified U.S. Individual

The term Specified U.S. Individual means any Private Individual who is a U.S. Citizen or U.S. Resident for tax purposes.

Specified U.S. Person

The term Specified U.S. Person is defined as a Specified U.S. Individual (Private Individual) and a Specified U.S. Entity (Business). Equivalent to Reportable Person under CRS.

Sponsored Closely Held Investment Vehicle

The term Sponsored Closely Held Investment Vehicle means any FFI that:

1. Is an FFI solely because it is an Investment Entity and is not a Qualified Intermediary, Withholding Foreign Partnership, or Withholding Foreign Trust; AND
2. Has a contractual arrangement with a Sponsoring Entity that is a Participating FFI, Reporting Model 1 FFI, or U.S. Financial Institution and that is authorised to manage the Sponsored Closely Held Investment Vehicle and enter into contracts on behalf of the Sponsored Closely Held Investment Vehicle (such as a professional manager, trustee, or managing partner), under which the Sponsoring Entity agrees to fulfil all due diligence, Withholding, and reporting responsibilities that the Sponsored Closely Held Investment Vehicle would have assumed if it were a Participating FFI; AND
3. Does not hold itself out as an Investment Vehicle for unrelated parties; AND
4. Twenty or fewer individuals own all of the Debt and Equity Interests in the Sponsored Closely Held Investment Vehicle (disregarding debt interests owned by Participating FFIs, Registered Deemed‐Compliant FFIs, and Certified Deemed‐Compliant FFIs and equity interests owned by an entity if that entity owns 100 percent of the equity interests in the FFI and is itself a Sponsored FFI.

Substantial U.S. Owner

A US Person with more than 10% interest by vote or value in a foreign corporation, partnership or trust. For foreign investment vehicles, any percentage of ownership is reportable

Tax Identification Number (TIN)

The term “TIN” means Taxpayer Identification Number or a functional equivalent in the absence of a TIN. A TIN is a unique combination of letters or numbers assigned by a jurisdiction to an individual or an entity and used to identify the individual or entity for the purposes of administering the tax laws of such jurisdiction. Some jurisdictions do not issue a TIN. However, these jurisdictions often utilise some other high integrity number with an equivalent level of identification (a “functional equivalent”). Examples of that type of number include, for individuals, a social security/insurance number, citizen/personal identification/service code/number, and resident registration number.

Tax residence

The concept of tax residency may differ from jurisdiction to jurisdiction. Common international criteria that jurisdictions may factor into the determination of tax residency could include.

With respect to individuals (and controlling persons):

• Domicile in a jurisdiction (i.e. the country a person treats as their permanent home, or has a substantial connection with);
• Where an individual lives (i.e. where the individual has his/her personal and economic activities or interests);

With respect to entities:

• Domicile in a jurisdiction;
• Place of effective management or incorporation/organisation of an entity;

It should be noted that a temporary stay in a jurisdiction can contribute to tax residency. Further it is possible that an individual or entity is considered a tax resident in more than one jurisdiction. Government officials, diplomats and military personnel are generally tax resident in their home jurisdiction. The actual determination of tax residency takes place under the local tax regime(s). You can check the conditions with the local government. Podenas Bank (Hong Kong) is not allowed to provide tax advice to determine a client’s tax residence.

Treasury Centre

An entity is considered a treasury centre if the primary activity of the entity is to enter into hedging and financing transactions.