ANALYSIS
• software licenses
Practical impact on Macedonian companies
• interest on outstanding accounts payable arising
from the acquisition of goods and services.
Because of its broad reach, FATCA can affect a Macedonian company as well as its US and foreign subsidiaries as follows:
Importantly, most 'pas... Macedonian
sive' type payments (such
companies should
as dividends and interest
not described above) do not
act now rather than
qualify as excluded nonficaught unprepared
nancial payments. However,
and running the risk
an exception may apply for
of being subject to
interest paid under certain
the 30% withholding
debt instruments known as
tax under FATCA.
'grandfathered obligations'
that were outstanding on
1 July 2014, have a fixed term, and have not been
materially modified after 1 July 2014.
If a payment is a 'withholdable payment' and no
exceptions apply, the payor (also known as the 'withholding agent') must obtain documentation from the
payee that contains information regarding the payees FATCA status. If the payee does not provide this
documentation, the withholding agent is required
to withhold 30% of the withholdable payment and
remit to the US tax authorities.
FATCA and 'traditional' withholding
The objective of traditional US withholding is to collect tax on nonresidents who are not engaged in business in the US but whom earn FDAP income that is
sourced to the US. The US has a domestic withholding rate of 30%; however this rate is often reduced
under a tax treaty with the non-US recipient’s country of residence. Currently there is no treaty in place
between the United States and Macedonia.
In contrast, FATCA withholding was not designed to
be a 'tax' on income. Instead, FATCA was enacted to
deter tax evasion by US taxpayers who are earning
unreported income through accounts held directly
or indirectly through foreign entities. FATCA seeks
to achieve this objective by using a withholding tax
mechanism to motivate the foreign entities to report
information about their US account holders and/or
US owners. Tax treaties therefore does not apply to
reduce FATCA’s 30% withholding rate. FATCA rules
must be applied before the traditional withholding
rules. Ultimately, only one withholding tax (FATCA or
traditional) will apply.
Emerging Macedonia Winter 2015 Issue 44
Macedonian entities (or their non-US subsidiaries)
may need to determine and provide documentation attesting to their FATCA classification.
The key question for a Macedonian entity that must
provide FATCA documentation is to determine its
FATCA classification. FATCA divides payees into two
categories - FFIs and Non-Financial Foreign Entities (NFFEs). Most FFIs are banks that are involved
in depository, custodial or investment activities however holding companies, treasury centers and
insurance companies can also be FFIs in certain
circumstances.
NFFEs, on the other hand, are all entities that are not
FFIs.
Pathways to compliance
FFIs and NFFEs have different paths to achieve
FATCA compliance and documentation. If the payee
is an FFI, the path to FATCA compliance is generally
longer and will depend on whether the FFIs country
of residence has consummated an Intergovernmental Agreement (IGA) with the US and the type of such
IGA.
Macedonia has not entered into an IGA with the
US. This means that Macedonian FFIs should consider whether they will need to directly enter into an
agreement with the US tax authorities to report specified information
about their U.S.
FATCA was enacted to deter accounts in order
tax evasion by US taxpayers to avoid potential
who are earning unreported
FATCA wit