FATCA mandates that U.S. banks making payments to foreign banks that do not have a data sharing agreement with the U.S. are required to withhold 30% of the payment. The withholding requirement is, theoretically, designed to ensure compliance with U.S. taxes. A number of countries have signed on to FATCA (meaning the 30% withholding doesn’t apply to a bank in a signatory country), but with the recent political turbulence over Ukraine, an agreement with Russia is unlikely in the near future.
The Moscow Times reports,
“The new law means that Russian banks that buy U.S. securities after July 1 will forfeit 30 percent of the interest and dividend payments. The withholding applies to stocks and bonds, including U.S. Treasuries. Some previously owned securities would be exempt from the withholding, but in general, previously owned stocks would not.
Private investors who use Russian financial institutions to facilitate trades also face the withholding penalty. Those private investors could later apply to the IRS for refunds, but the inconvenience would be enormous.”
Once FATCA compliance begins, Russian investors in U.S. assets will face increased costs and compliance burdens. The 30% withholding is refundable from the IRS, but it requires a filing in the U.S. What will Russian investors in the U.S. do?
See the Moscow Times article for more.