As of January 1st, 2024, a new obligation has come into effect in the United States of America. This obligation involves a new information reporting requirement under the Corporate Transparency Act (CTA), regarding the beneficial owners of certain companies and legal entities in the U.S., as well as certain foreign entities operating under the same law.
The CTA mandates transparency to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury, specifically regarding information about the beneficial owners of certain entities (Beneficial Ownership Information or "BOI").
The purpose of this new information requirement is to support the fight against money laundering, terrorist financing, and other illicit activities. It is of utmost importance to note that the CTA is not part of the Internal Revenue Code of the United States but is rather a component of a set of federal laws that require recordkeeping and reporting on certain types of financial transactions, such as the Bank Secrecy Act.
Entities Obligated to Report
Among the entities required to submit BOI reports are those formed under the laws of the United States of America, such as corporations, limited liability companies, or any other similar legal entity created before a Secretary of State or a similar office under the law of any of the 50 states in the referenced country.
Who is a Beneficial Owner?
Any individual who, directly or indirectly:
An individual has "Substantial Control" over a reporting entity when they direct, determine, or exercise substantial influence over important decisions of the reporting entity. This includes any senior executive of the company, regardless of their formal title or whether they have any "Ownership Interests" in the reporting entity. Detailed regulations of the CTA define the terms "Substantial Control" and "Ownership Interest" more specifically.
When should the report be filed?
Regarding the filing deadline for reports, there are different filing deadlines based on the registration/creation date of an entity or if there is a change in beneficial ownership information, as follows:
What type of information needs to be reported?
Among the information that companies must report to FinCEN includes the following information:
It is important to note that some entities may not currently have an EIN, so they will need to obtain a tax identification number to comply with these reports. Additionally, information about the beneficial owners of the entity must be provided. This information includes: name, date of birth, address, and Tax identification number, as well as the issuing jurisdiction of an identification document and an image of that document.
Possible exceptions
It is recommended to review whether any existing exceptions apply to filing BOI reports, such as cases of publicly traded companies, banks, securities brokers, accounting firms, tax-exempt entities, and certain inactive entities, among others.
It is also expected that certain operating entities will be exempt from filing reports. To qualify for this exemption, the company must:
If any of our clients, family members, or friends become part of American entities, it will be relevant to verify compliance with the obligation described above, failure to do so can result in significant economic and legal fines. It is important to note that the information provided in this tax flash is general in nature and does not constitute specific advice as it exceeds our professional scope. The obligation mentioned in this note is based on laws of the United States of America.
For more information, you can find the supporting link here: www.fincen.gov/boi
We are here to provide any additional information you may need, as well as to respond to your questions and comments. Do not hesitate to contact us if you require more details or assistance regarding this situation.