New reporting requirements for financial institutions in Jamaica

The Common Reporting Standards (CRS) was adopted in Jamaican local law in December 2020. The CRS, which is part of the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD, became law as part of The Revenue Administration (Convention on Mutual Administrative Assistance in Tax Matters) Regulations.

This legislation aims to combat tax evasion by exchanging financial information between tax authorities worldwide about reportable accounts in financial institutions. Currently, 102 countries are participating in these CRS regulations. This means that if an individual has a reportable account in a financial institution in any of these 102 countries, the institution must report this information to its local tax authority. The local tax authority will then share it with the tax authority in the account holder's country of residence.

How does the standard for automatic information exchange work?

"Reporting Financial Institutions" ("RFI") such as banks, investment entities, and specified insurance companies in Jamaica are mandated under the regulations to file an information return to Tax Administration Jamaica (TAJ) on financial accounts identified as reportable accounts maintained by that institution.

The RFI is only required to provide information on accounts held by persons who are residents in either of the 102 countries listed under the regulations which includes Canada, Cayman Islands, China, and the United Kingdom ("reportable jurisdictions"), etc.

The first information return was due on May 31, 2022, in relation to the previous year, 2021. The next information return after that was due on May 31, 2023.

What information is required to be on an information return?

An information return filed by an RFI to TAJ should include the following —

1) Tax Identification Number of a reportable person;

2) Jurisdictions of residence;

3) Account balance or value, including in the case of a cash value insurance contract or annuity contract as at the end of the year;

4) Account number or functional equivalent; and the total amount of income generated with respect to the assets held in the account

Who is considered a reportable person?

A reportable person includes —

1) an individual or entity that is a resident in one or more of the 102 countries listed under the regulations.

2) An estate of a deceased person that was a resident in one or more of the 102 countries listed under the regulations.

3) A partnership or limited liability partnership or another similar legal arrangement that has no tax residence but has a place of effective management in one or more of the 102 countries listed under the regulations.

It must be noted that a corporation with stocks which are regularly traded on one or more established securities markets is not required to be reported on.

Which accounts are reportable?

The following accounts must be reported on by an RFI:

1) Accounts held by one or more reportable persons; or

2) Accounts held by passive non-financial entities ("passive NFE") that has one or more controlling persons that is a reportable person.

Reporting on pre-existing accounts

Accounts held in RFIs prior to the 2021, calendar year are known as pre-existing accounts. 

a) for a pre-existing entity (corporation) account that values USD 250,000 or less, that account is not required to be reviewed or reported on until May 31, 2023.

b) For a pre-existing individual account that values USD 250,000 or less, that account should be reviewed and reported on.

RFIs are not required to report on all accounts. Some of the accounts that are excluded from being reported on include:

1) Accounts that are held only by an estate and the documents for these accounts include a copy of the deceased's will or death certificate;

2) Accounts that are established in connection with a court order or judgement or a sale, exchange, or lease of real or personal property provided that the account satisfies certain requirements;

3) Certain depository accounts;

4) Certain life insurance contracts that have a coverage period that is scheduled to end before an insured individual turns 90 years old; and

5) Any other account that the regulation either in whole or part applies to.

Penalties

There are various monetary penalties that a RFI may attract for failure —

1) To file an information, return on time and in the correct manner — maximum JMD 1 million for each failure.

2) To apply the required due diligence procedures — maximum JMD 1 million for each failure

3) To open an account without valid self-certification or fails to close an account where the account holder refuses to provide valid self-certification or documentary evidence — JMD 500,000 for each failure.

RFIs are not the only ones who can attract penalties. Reportable persons who provide false statements or omit information that is required to be put in an information return without reasonable excuse will be required to pay a penalty of a maximum of JMD 10,000.

Additionally, if a reportable person provides a false self-certification or documentary evidence the maximum penalty is JMD 10,000.

It is important for not only financial institutions but also individuals and entities to understand the provisions of these regulations and or engage a professional to prevent the attraction of any penalties for failure to comply.

What will this law change?

Among the things which will be affected are:

1) The Know Your Client (KYC) requirements of financial institutions will now have to include a collection of information regarding the tax residency of account holders. This may include foreign tax identification numbers; particulars of foreign dwelling homes and tax filings;

2) Financial institutions may be required to introduce due diligence procedures to double-check information received from account holders regarding their tax residence; and

3) With more third-party information being provided to tax administrators, account holders will be forced to ensure that their tax filings are more complete.

The information contained in this article does not constitute legal or other professional advice or an opinion of any kind and is intended for general information purposes only.

Contributed by Denzil Whyte Vice Managing and Tax Partner at Signature Creed, Shamone King, Tax Associate, Legal Counsel and Shadae Byfield O'Connor, Manager, Tax & Legal Counsel at Sygnus