Hong Kong and US sign FATCA inter-governmental agreement
As widely expected Hong Kong has now signed an inter-governmental agreement (IGA) with the US to facilitate compliance by Hong Kong financial institutions with FATCA. There are two forms of model IGA’s. The Hong Kong authorities have executed a Model 2 IGA with the US, which obliges financial institutions to provide information on US taxpayers directly to the IRS and reply to specific requests from the IRS that will be exchanged at a government level (1).
The financial institutions will need to register with the US Internal Revenue Service (IRS) before concluding individual agreements with the IRS for the provision of information. Under the agreements the financial institution will report the account information of their clients, who are US taxpayers, to the US tax authorities, with those account holders consent.
The signature of the IGA grants exemptions to financial institutions or financial products that are a low risk for tax evasion by US taxpayers and thus reduces the reporting burden on Hong Kong financial institutions affected by FATCA. Under the provisions of the IGA the first reporting will start in March 2015.
FATCA imposes a reporting obligation on financial institutions which have clients who are US taxpayers, which under FATCA, includes US citizens, individuals who are US resident and certain entities established in the US or which are controlled by US individuals.
To meet these obligations Hong Kong financial institutions are obliged to put in place systems and appropriate internal procedures to protect client funds, investments and interests in financial instruments from withholding by third parties and to avoid giving assistance to clients who engage in tax evasion.
In March this year Hong Kong entered a Tax Information Exchange Agreement (TIEA) with the United States (US) to enable the exchange of information relating to taxes. For further information see our News Bulletin ‘Hong Kong and US sign tax information agreement’ http://www.rosemont-int.com/news/29-03-2014-hong-kong-and-us-sign-tax-information-agreement/
Full details of the ITEA can be found in English at the Hong Kong Financial Services and Treasury Bureau site: http://www.fstb.gov.hk/fsb/topical/doc/HK-USIGA.pdf
For more information on services provided through Rosemont (Hong Kong) Ltd please see: http://www.rosemont.hk
(1) Model 1 IGA requires financial instructions outside of the US, to provide information on US taxpayers to their home government, which then exchanges that information with the IRS, at a governmental level.