The US government’s effort to use foreign financial institutions (FIs) to crack down on tax evasion by its citizens is causing a flurry of activity among FIs in Singapore.
This is because the first phase of implementation of the dreaded Fatca rules (Foreign Account Tax Compliance Act) is set to take effect in January 2013.
From 2013, banks and other institutions such as investment management firms and trust companies will need to ascertain whether new account holder are US citizens or green card holders. But more than that, banks and other institutions are expected to put in place processes to ascertain if current account holders may fall within the US tax net as well.
Foreign Fls which do not participate will be required to impose a 30 percent withholding tax on US-sourced income and principal.
Institutions can make submissions on Fatca rules to the US Department of Treasury and the Inland Revenue Service (IRS) by the end of this month.
The Association of Banks in Singapore (ABS) has to date made two submissions to seek clarifications on three issues – the ‘disproportionate’ cost of compliance, legal issues and the possibility of raising account thresholds for compliance. The exemption threshold is set at a low US$50,000 (S$63,000).
ABS said it was ‘actively reviewing’ the implementation rules, and will make another representation for clarification on the latest release of Fatca regulations. When the US released Fatca regulations in February, the US Treasury also released a joint statement with the governments of the UK, France, Italy, Spain and Germany on an inter-governmental framework for implementation.
This is a reciprocal information exchange arrangement whereby a foreign government can pass over information on US account holders to the US, and the US government can pass information on foreign account holders to their respective governments.
Fatca will apply to banks, custody accounts, investment managers, insurance companies and trust accounts. Among banks, it appears that a greater onus may lie on relationship managers to ascertain their clients’ status with regard to US citizenship or permanent residency.
Yet another concern is that non-bank institutions may not be up to speed on the requirements. The lack of clarity from the IRS (Inland Revenue Service) may cause many financial institutions to either refuse or find it difficult to comply with Facta.
The final regulations scheduled for publication in the third quarter this year is leaving little time for the FIs to prepare.
(Excerpted from Business Times, Singapore)
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