Out-Law News | 11 Dec 2014 | 5:58 pm | 1 min. read
The inter-governmental agreement (IGA) will make it easier for financial institutions in Singapore to comply with the US Foreign Account Tax Compliance Act (FATCA) , Singapore’s Ministry of Finance (MOF) said.
FATCA imposes a 30% withholding tax on payments of US source income made to non-US financial institutions unless they enter into an agreement with the US Internal Revenue Service (IRS) and disclose information about their US account holders.
FATCA compliance presents a number of problems for financial institutions because the information disclosure requirements under FATCA are not necessarily permitted under data protection, confidentiality and bank secrecy laws. In addition, the burden of each financial institution entering into an agreement with the IRS about its compliance with FATCA is significant
As a result of the IGA, companies in Singapore can now report US account holder information to their domestic tax authority, which will send it to the IRS, saving firms from dealing directly with US tax authorities. Many other countries, including the UK have entered into IGAs.
Singapore-based financial institutions “will need to perform due diligence checks to identify financial accounts held by US persons”, the MOF said. However, the MOF said FATCA will not affect Singapore citizens who have no US tax liabilities.
In May 2014 Singapore agreed to the Common Reporting Standard (CRS) for automatic exchange of financial account information in tax matters, created by the Organisation for Economic Co-operation and Development (OECD). Once implemented this will result in the exchange of information with the UK and many more jurisdictions. Singapore has said that it will start reporting under CRS in 2018.
Developed by the OECD at the request of the G20 group of the world's largest economies, the CRS will require financial institutions and brokers to report information to authorities in their own jurisdictions which will then be passed on to other participating countries automatically. Financial account information covered by the standard includes balances, interest, dividends and sales proceeds from financial assets, and it will apply to accounts held by both individuals and entities, including trusts and foundations.