In the Northern Hemisphere, August is most commonly known as ‘summer holidays’. Many of us are going on vacation, enjoying some sunshine and well-earned R&R. But those in the Southern hemisphere are in the midst of winter, and still very much on the ball. Sadly, going on vacation doesn’t mean the regulations give you a break as well – the deadlines are the deadlines, and if you miss them due to your staff being on vacation, then you’ll get no help.

So, here’s what you need to be doing in August if you want to stay ahead.

Prepare Your US Tax Return

Believe it or not, it’s time to start preparing for your US tax return on Form 1042. Most QIs and NQIs will have applied for an extension back in January or February, which means your extended deadline will be coming up on September 14^th. But it’s never a good idea to wait until the last minute to get your ducks in a row.

Your 1042 return will need to match up to the combination of all of your own 1042-Ss and any amendments you submitted, as well as the aggregate of your upstream 1042-Ss from your counterparties. If you’re a non-withholding QI, you don’t need to fill in boxes 1-59 which is a relief! Instead, you just need to put the total into boxes 59 and 60. But if you’re a withholding QI, then you’ll need to complete boxes 1-59. But remember, the amounts in each box should match the period in which the tax liability arose, not necessarily the same as when you made your deposits to the US Treasury.

Don’t worry, it’s not as scary as it sounds! And thanks to the efforts of the newly formed Association of Qualified and Authorised Intermediaries (AQAI), your 1042 for this year doesn’t need to be electronic. It can still be done on paper – you just need to make sure that you get the right address, AND make VERY sure that you send it by a registered delivery method. If the IRS says that they didn’t receive it (which has happened a few times), you’ll need to be able to prove dispatch to avoid problems. This can, and does trip up quite a few firms.

We recently came across a firm, a micro-QI, who couldn’t prove that they sent in their 1042. The IRS denied receipt, and then denied their request for a waiver of their Periodic Review. So now they have 6 months to get a periodic review done and make a certification. All because they didn’t get proof of postage! It’s such a simple mistake, but for micro-QIs the cost can easily add up to more than the tax they’ve collected.

Just one more note on 1042 tax returns. If anyone has helped you to prepare your 1042 and they were paid, then they will need to have an IRS issued PTIN, and that must be shown on the 1042 form at the bottom of page 1.

Prepare For W-8 Renewals

The other big thing you need to do is start planning for renewing all of those expiring W-8s. As most firms know, these forms are valid for three years from the end of the year in which they were signed. This means that all W-8s signed in 2021 will expire on December 31^st 2024. And if, like many firms, you’re using those W-8s to collect FATCA status and claims of treaty benefit, then the renewal process is hugely important and can take up a lot of resources. Especially given that, if a W-8 has a claim of treaty benefit and the client fails to renew it, you’ll need to change their tax rate from a lower treaty rate to the statutory 30%. For QIs that would be done by moving their assets into a different tax rate pool account, which is less than ideal for you. Your client will probably be quite upset too! So if you’re planning outreach in September for those renewals, you’d better have a plan in place by August.

You can also take this opportunity to take a look at some alternatives. The IRS allows digital, electronically signed substitute W-8 forms, and we at TConsult have such a system. It’s called the Investor Self-Declaration or ISD. Using an ISD to replace paper forms W-8 is a great way to take out the manual process of validation, and can also help with your due diligence for FATCA and CRS by identifying reportable clients right up front. Our ISD system not only returns a digital ISD to you and your client, it can also use APIs to prepopulate ISD to make it easier for clients to complete the renewal and deliver raw data back to the financial institution for their FATCA and CRS databases. We’ve also integrated the ISD with KYC specialists Muinmos, so if you’re using their platform, you will already have the ability to switch on our ISD, just ask your Muinmos relationship manager.

With all of that done, go and enjoy your vacation! They’ll be plenty to do in September, so make the most of the quieter time while you can. And if you need any assistance or support, you can always give us a call at TConsult – one of our experts will be happy to help.