On December 2 2014, the Cyprus finance minister and the American ambassador to Cyprus formally signed the inter-governmental agreement between Cyprus and the US under the Foreign Account Tax Compliance Act (Fatca). Fatca is an American tax measure enacted in 2010 to prevent and detect US tax evasion and improve taxpayer compliance by requiring foreign financial institutions (FFIs) to report information related to the ownership by US citizens of assets held overseas. A 30% withholding tax is imposed on transactions with overseas financial institutions and other entities that fall within the scope of Fatca unless the institution concerned has concluded an agreement with the US Internal Revenue Service defining its reporting obligations, or the institution's home country has concluded an inter-governmental agreement (IGA) covering the relevant matters.
There are two main forms of IGA, known as Model 1 and Model 2. Under the Model 1 IGA, institutions subject to Fatca report information to their own tax authorities for onward transmission to the US authorities. Under Model 2, institutions provide information directly to the American authorities.
As with other EU members, in 2013 Cyprus undertook to enter into a Model 1 IGA. Before actually signing the formal agreement, Cyprus was treated as having an agreement in effect from April 22 2014, enabling Cyprus-resident FFIs to register on the IRS Fatca website.
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