There are ten criteria that must all be met before a Financial Institution can be treated as a Local Client Base Financial Institution. A Financial Institution should self-assess whether it meets these criteria and maintain appropriate records to support its self-assessment. The criteria are listed below:
a) The Financial Institution must be licensed and regulated under the laws of the UK. For example, this would include where a Financial Institution is an Authorised Person under Section 31 FSMA 2000 or where closed ended investment companies qualify as an Investment Trust Company under s1158 of the Corporation Tax Act 2010, or as a Venture Capital Trust under part 6 Income Tax Act 2007.
b) The Financial Institution must have no fixed place of business outside the UK other than where the location outside of the UK houses solely administrative functions and is not publically advertised to customers.
This applies even if the fixed place of business is within a jurisdiction that has entered into an Agreement with the US concerning FATCA.
c) The Financial Institution must not solicit potential Financial Account holders outside the UK. For this purpose, a Financial Institution shall not be considered to have solicited such customers outside the UK merely because it operates a website, provided that the website does not specifically indicate that the Financial Institution provides accounts or services to non-UK residents or otherwise target or solicit US customers.
A Financial Institution will also not be considered to have solicited potential Financial Account holders outside the UK if it advertises in either print media or on a radio or television station and the advertisement is distributed or aired outside the UK, as long as the advertisement does not specifically indicate that the Financial Institution provides services to non-residents. Also, a Financial Institution issuing a prospectus will not, in itself, amount to soliciting Financial Account holders, even when it is available to US Persons in the UK. Likewise, publishing information such as Reports and Accounts to comply with the Listing Rules, Disclosure Rules and Transparency or AIM rules to support a public listing or quotation of shares will not amount to soliciting customers outside the UK.
d) The Financial Institution is
For insurance products the following reporting or taxing regimes will apply to this section:
e) At least 98 per cent of the Accounts by value, provided by the Financial Institution must be held by people who reside in the UK or another Member State of the European Union.
The 98 per cent threshold can include the Accounts of US Persons if they are resident within the UK. It applies to both Individual and Entity Accounts.
A Financial Institution will need to assess whether it meets this criterion annually. The measurement can be taken at any point of the preceding calendar year for it to apply to the following year, as long as the measurement date remains the same from year to year.
f) Subject to subparagraph g) below, beginning on 1 July 2014, the Financial Institution does not provide Financial Accounts to:
Where a Local Client Base Financial Institution provides Financial Accounts to US citizens who are resident in the UK, these Financial Accounts do not need to be reported to HMRC unless the account holder subsequently ceases to be a resident of the UK.
g) On or before 1 July 2014, the Financial Institution must implement policies and procedures to establish and monitor whether it provides (meaning opens and maintains) Financial Accounts to the persons described in subparagraph (f) above. If any such Financial Account is discovered, the Financial Institution must either report that account as though the Financial Institution were a Reporting UK Financial Institution, or close the account, or transfer the account to a Participating Foreign Financial Institution, Reporting Model 1 Foreign Financial Institution or a US Financial Institution.
This means that even if Financial Accounts have been provided to Specified US Persons, a Non-Participating Financial Institution or any Passive NFFE with Controlling Persons who are US citizens or residents prior to the 1 July 2014, the Financial Institution can still be a Financial Institution with a Local Client Base provided that the appropriate reporting is carried out.
h) With respect to each Financial Account that is held by an individual who is not a resident of the UK or by an entity, and that is opened prior to the date that the Financial Institution implements the policies and procedures described in subparagraph (g) above, the Financial Institution must review those accounts in accordance with the procedures applicable to Pre-existing Accounts, described in Annex I of the Agreement, to identify any US Reportable Account or Financial Account held by a Non-Participating Financial Institution. Where such accounts are identified, they must be closed, or transferred to a Participating Foreign Financial Institution, Reporting Model 1 Foreign Financial Institution or a US Financial Institution or the Financial Institution must report those accounts as if it were a Reporting UK Financial Institution.
This allows a Financial Institution with a Local Client Base to maintain its status while reporting on relevant Financial Accounts that were opened before the adoption of the requirements set out in this section. This means that where a Local Client Base Financial Institution has a reportable account then it is required to Register and report (or close) the account.
i) Each Related Entity of the Financial Institution, where the Related Entity is itself a Financial Institution must be incorporated or organised in the UK and must also meet the requirements for a Local Client Base Financial Institution with the exception of a retirement plan classified as an Exempt Beneficial Owner.
j) The Financial Institution must not have policies or practices that discriminate against opening or maintaining accounts for individuals who are Specified US Persons and who are residents of the UK.