5. Why is correct entity classification so important?

The classification of an entity* under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) is very important because it will determine whether information relating to the entity’s controlling person(s) needs to be collected and disclosed to the relevant tax authorities. 

An example of this is if the entity has either US controlling persons, and/or controlling persons that have tax obligations, tax liabilities or tax residencies outside the county of onboarding, AND the entity classification type is one of the following:

• Passive non-financial [foreign] entities* (passive NFEs )
• Trustee documented trusts* or
• Investment entities* that are resident in a non-participating jurisdiction and are managed by another financial institution in a participating jurisdiction then the entity will be FATCA and/or CRS impacted.

*For any defined terms please see the Table of terms and definitions.