SINGAPORE – The United States and Singapore have reached a landmark agreement on tax information sharing this week that will see Singapore sign off on the United States’ Foreign Account Tax Compliance Act (FATCA), according to a U.S. Treasury Department spokesman.
For several years now, the United States has been preparing legislation under FATCA, a complex reporting and withholding regime, which will enable the U.S. government to better access Americans’ offshore accounts, investments and income for taxation purposes.
A potential benefit for signatory countries to the FATCA entails access to financial information on their own citizens’ offshore holdings in U.S. financial institutions.
Under FATCA, participating foreign financial institutions will be required to report the holdings of Americans’ accounts with more than US$50,000 (S$62,500) to the U.S. Internal Revenue Service (IRS), or risk paying a 30 percent withholding tax on the firm’s U.S. investment income for noncompliance.
Under the inter-governmental agreement (IGA) Singapore is set to sign with the U.S. regarding FATCA, Singaporean financial institutions will report this information to the Singapore Inland Revenue Authority (IRAS) which will in turn pass the information on to the IRS.
“Transmitting this information through IRAS helps to ease the compliance burden for our financial institutions, as their reporting obligations would be deemed met once they have transmitted the information to IRAS,” the Ministry of Finance (MoF) said in a statement on Tuesday.
Singapore’s IGA is expected to be followed by the signing of a more formal agreement on the FATCA later this year.
For the time being, however, Singapore-based financial institutions will have until the end of the year to register with the IRS’ online FATCA registration portal. Data required to be submitted by banks will likely be back-dated to July 1st, however, when the FATCA will officially be launched by the United States.
Many Singaporean banks have welcomed the move, and have been preparing for compliance with the FATCA for several months.
On a broader level, Singapore’s acceptance of the FATCA will further consolidate the country’s status as one of the most mature, transparent and developed international financial centers in the world – with more than US$1.3 trillion invested in the city-state’s wealth management industry.
At the present time, the U.S. has more than 60 IGAs regarding the FATCA with Britain, Germany, Japan, Switzerland, Norway, Ireland and Spain (among others) and several more are expected to follow.
While some foreign governments view FATCA legislation as U.S. encroachment on their sovereignty, others have embraced the opportunity to receive more tax information on their citizens’ offshore holdings from the United States.
Currently, the Hong Kong SAR, Singapore’s main regional competitor in Asian finance, is also engaged in negotiations with the U.S. Treasury regarding a FATCA IGA. Despite signing a separate tax information agreement with the U.S. this March, upgrading to full FATCA compliance status is a subject of considerable controversy in both Hong Kong and Mainland China.
A comprehensive report on the FATCA compiled by Bloomberg BNA titled, “How to Prepare for FATCA If You Are a Nonfinancial U.S. Company” can be accessed here, and information from the IRS accessed here.
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