US Beneficial Owner Reporting: An Introduction to the US Corporate Transparency Act
Beneficial owner reporting is familiar to many of us in financial services as it been required under international AML and FATCA/CRS regimes. As we wrote in a previous blog in 2020, “The US as a Tax Haven and the Election’s Impact…,” despite the fact that the US introduced FATCA, US entities had not previously been subject to these reporting requirements. Highlighting this same concern, the OECD’s Financial Action Task Force issued a report that stated “the relative ease with which U.S. corporations can be established, their opaqueness and their perceived global credibility makes them attractive to abuse for [money laundering and terrorism financing], domestically as well as internationally.” The US has finally taken action.
The Corporate Transparency Act (CTA) requirements took effect from 1st January and move beyond existing beneficial owner reporting that largely focused on financial institutions. Now requiring reporting by all types of companies, the CTA aligns the US requirements with international standards as over 100 countries commit to similar reforms. However, in some ways these rules are now more demanding than traditional international standards.
The regime requires non-exempt domestic and foreign entities that are registered to do business in the US “Reporting Companies,” to submit beneficial ownership information from 1st January 2024. Reporting Companies encompass a range of entities, excluding larger regulated ones, and focus on those less likely to be subject to existing beneficial ownership reporting. While Reporting Companies existing at 1st January have one year to submit these reports, new companies must report within 90 days of creation or registration.
Reporting Companies are required to identify and report beneficial owners, which is defined as any individual that, directly or indirectly, exercises control over the company or owns at least 25% of the company. Every reporting company will be required to report at least one beneficial owner, and will have to report all individuals who exercise substantial control over the company. Substantial control is defined broadly under the rules.
The beneficial owner information required to be reported under the CTA is also more extensive that other regimes such as FATCA/CRS. In addition to the traditional information: full legal name; date of birth; addresses; unique identifying numbers; and jurisdiction; an image of a US passport, US driver’s license or a foreign passport must also be provided. However, in lieu of providing this documentation to each company they control, beneficial owners may apply for an identifying number that Reporting Companies can include in their filings.
If you think you may be affected, or have any questions, please don’t hesitate to get in touch.
