The U.S. Congress enacted the Corporate Transparency Act (the “Act”) as part of the National Defense Authorization Act for Fiscal Year 2021. The Act goes into effect on January 1, 2024. The Act creates another tool to further the federal government’s fight against money laundering, terrorism, corruption, fraud, and other illegal activity. The Act requires “reporting companies” to provide their “beneficial owners” with certain information. The U.S. Treasury enforces the Act through the Financial Crimes Enforcement Network (“FinCen”), which issued the Final Rule on September 30, 2022, with an effective date of January 1, 2024 (See 31 CFR Part 1010.380). Note that the Final Rule defines “State” as a state of the United States and any other commonwealth, island, or possession of the United States, including Puerto Rico.
I. To whom it applies?
A “Reporting company” must file a Beneficial Ownership Information Report (“BOI Report”) with FinCen within certain time limits. A “Reporting company” can be domestic or foreign. A Domestic Reporting company means any entity that is a corporation, limited liability company, or other entity created by filing a document with the secretary of state or any similar office created under State law (for instance, the Puerto Rico Department of State). A Foreign Reporting Company is a corporation, limited liability company, or other entity created under the law of a foreign country and is registered to do business in any State by the filing of a document with the secretary of state or any similar office created under State law.
The Final Rule excludes 23 types of entities/activities from being considered a Reporting company. These exemptions include banks, credit unions, insurance companies, some tax-exempt entities, and large operating companies, among others. The large operating companies exclusion applies to companies with 20 or more full-time employees in the United States, having an operating presence in the United States, and having filed a federal income or information return for the prior year showing gross receipts of more than $5,000,000. Please refer to the language in the Final Rule to determine each exclusion’s applicability.
II. What information is disclosed in the BOI Report?
A Reporting company must provide information about the company and its beneficial owners. A “Beneficial Owner” is defined as any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interest of the reporting company. The Final Rule provides guidelines for identifying Beneficial Owners.
The Reporting company must provide its full legal name, trade names or dbas, complete current address, state, or foreign jurisdiction of formation (if foreign), the state where first registered, the Employer Identification Number (EIN), Taxpayer Identification Number (TIN) or the foreign identification number (if it does not have a TIN).
For the Beneficial Owner, the Reporting company must provide his full legal name, birthdate, complete current address, and a unique identification number issued by the State or foreign jurisdiction as shown in a valid U.S. passport, a current identification issued by a State or local government, a current driver’s license issued by a State, or a current foreign passport if none of the other documents are available. An image of the document used must be supplied with the submission.
III. When is this filing due?
For Reporting companies created on or after January 1, 2024, their BOI Report is due within 30 calendar days from its creation date. For reporting companies already existing as of January 1, 2024, the due date to file the BOI Report is not later than January 1, 2025. The Final Rule also requires updating/correcting the information previously reported to FinCen within 30 calendar days of any change.
Failure by the Beneficial Owner and the Reporting company to file or update the BOI Report will subject it to a daily penalty of $500 until the non-compliance is resolved, a fine of not more than $10,000, and/or imprisonment for 10 years.
IV. Final comments
Entities already registered and those formed in the PR Department of State on or after January 1, 2024, must file a Beneficial Ownership Information Report with FinCen. Penalties for non-compliance are significant. Note that the chief concern faced by most Reporting companies is identifying their Beneficial Owners. For more information on the above discussion, please refer to https://www.fincen.gov/boi.
If you have any questions or need additional information, please don’t hesitate to reach us at:
Plaza 273, Suite 900
273 Ponce de Leon Ave.
San Juan, Puerto Rico 00917
Phone: 787-710-8262
By: Efraín Irizarry
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