The US-Cayman Islands Model 1 Inter-Governmental Agreement (IGA) was signed and published on 29 November 2013. Whilst we are still awaiting the publication of the terms of the Cayman Islands domestic legislation that will implement the IGA (which we expect to be forthcoming in early in 2014), we wanted to take the opportunity to summarise our understanding of the requirements and responsibilities of Cayman Islands investment funds (Funds) under the IGA and how Appleby can assist with the Fund's obligations.

Under the IGA, a Fund is classified as a Foreign Financial Institution (FFI), there are three broad categories under which the Fund's obligations under the IGA will fall – (i) registration with the IRS, (ii) due diligence to facilitate the identification of US reportable accounts and (iii) reporting to the Cayman Islands Tax Authority on US reportable accounts. Under the IGA, a Fund is classified as a Foreign Financial Institution (FFI).

Registration with the IRS

Despite not reporting directly to the IRS, a FFI (i.e. a Fund) under the IGA is required to register with the IRS to obtain a global intermediary identification number (GIIN). The deadline for this filing is 31 December 2014. However, those entities registered on or before 25 April 2014 will have the advantage of being on the first list of GIIN numbers that will be released on 30 June 2014, which will be of comfort to contractual counterparties.

The Fund may appoint a sponsoring entity, provided they are authorised to act on behalf of the Fund (such as a fund manager, fiduciary, corporate director or managing partner) to fulfil applicable registration requirements. This may be beneficial, for example, where there are several Funds under common management to be registered. The sponsoring entity would then agree to perform all due diligence, withholding, reporting and other requirements under the IGA on behalf of all Funds it sponsors.

Registration with the IRS will be the responsibility of the Fund, or the sponsoring entity, which must appoint a FATCA responsible officer (FRO) for this purpose. Appleby Trust (Cayman) Ltd. (ATCL) will be able to assist with the administrative element of the registration process under instruction from the Fund, if required.

Compliance/Due Diligence

Under the IGA, Funds are required to apply certain due diligence procedures in order to identify US reportable accounts. This process will involve, inter alia, a review all electronic searchable information on record for U.S. indicia. This will also involve considerable coordination by the FRO with the administrator. The due diligence procedures are set out in Annex 1 of the IGA.

ATCL is familiar with the due diligence procedures set out in Annex 1 of the IGA and has performed analysis to identify any updates necessary to either their systems or processes in order to assist the Fund to comply with these procedures.

Reporting to the Cayman Islands Tax Authority

Under the IGA, Funds will be required to report annually certain information on US reportable accounts to the Cayman Islands Tax Information Authority. The main body of the IGA sets out the information that must be reported to the IRS by the Cayman Islands Tax Information Authority, and also sets out the timing of those reporting obligations.

The governing body of the Fund will need to formally appoint the FRO. The role of the FRO is a specialised function that will be responsible for ensuring appropriate reporting to the Cayman Islands Tax Authority. ATCL will be able to contract with the Fund to provide such reporting for the Fund's governing body, if required.

Other Considerations

As well as familiarising themselves with their obligations under the IGA and ensuring they fully understand the status and requirements of the Fund, Fund governing bodies may also wish to consider other matters such as communications to investors in respect of FATCA and whether the Fund's governing and subscription documents are required to be updated.

Appleby continues to advise its fund clients to obtain independent tax advice in respect of FATCA. Based on our understanding of the IGA, we consider that Funds should assume that they will be affected in some way by FATCA unless they are advised otherwise, regardless of whether or not the Fund has US investors or investments.

Appleby has taken significant steps over the last year in the preparation of its FATCA Implementation Programme. Appleby is committed to ensuring that it plays a supportive role in helping its clients in respect of FATCA.

Appleby and ATCL will advise further in relation to FATCA and its implementation as soon as the Cayman Islands domestic legislation is passed into law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.