Ask the Expert September 2013
Q: Do financial institutions in Hong Kong need to comply with FATCA?
A: FATCA is a piece of US tax legislation designed to track US nationals who may be avoiding tax liabilities by holding assets (including shares) overseas. The US Internal Revenue Service (IRS) believes there is wide-scale tax evasion by US persons hiding assets abroad. Final FATCA regulations were released by the IRS on 17 January 2013.
FATCA legislation impacts organisations outside the US which operate and/ or have relationships with organisations that operate within the financial services industry and who have financial account holders.
FATCA will require foreign financial institutions (FFIs) to report information to the IRS about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest. The legislation includes a provision for the deduction of a 30% withholding tax from all US-sourced income to FFIs that do not comply. The US Treasury Resource Centre site for FATCA can be viewed at www.treasury. gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx.
While US tax law has limited application outside the US, the FATCA rules achieve their purpose by placing the burden on the financial institutions – requiring them to contractually agree to the rules or face a withholding of 30% on the income and proceeds in respect of the sale of certain investments they may have either in the US or with other institutions outside the US that have agreed to apply the FATCA rules.
You should consult your tax adviser to determine if your company is affected by FATCA. Your registrar, share plan administrator and other parties will be in touch for clarification on your FATCA status so they can amend their procedures accordingly. If you are an FFI you will be required to maintain records and report on them to the IRS; ask your service provider if they can help with this.
James Wong ACIS ACS,
Chief Executive Officer Computershare Asia email@example.com www.computershare.com
SIDEBAR: What is the compliance deadline?
On 12 July this year, the US Internal Revenue Service released Notice 2013-43 providing a six-month extension for when the 30% withholding (mentioned above) will begin – namely for payments after 30 June 2014. Foreign financial institutions can already register, however, as participating foreign financial institutions under FATCA. Notice 2013-43 also provides that financial institutions operating in jurisdictions that have signed an intergovernmental agreement (IGA) covering their financial institutions’ compliance with FATCA will be treated as having an effective IGA.