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Hong Kong – Impact of FATCA on Financial Institutions in Hong Kong and Beyond.

10 May, 2012

 

 

The proposed Foreign Account Tax Compliance Act (FATCA) regulations issued in February 2012, outlining far-reaching new US tax compliance obligations, provided a “wake up call” for non-US financial institutions and governments, as noted by Richard Weisman, Head of Baker & McKenzie’s Global Tax Practice Group and Vice Chairman of The American Chamber of Commerce in Hong Kong.
 
“Hong Kong financial institutions now face a complex and onerous compliance burden in order to meet the FATCA requirements,” Weisman said. “AmCham has been working with the Hong Kong financial services community to convey concerns about FATCA to the IRS and US Treasury Department. Written comments were recently submitted to the US Treasury. I and other AmCham members will be conveying our concerns in person to members to the Congress and US Treasury Department during AmCham’s Washington Doorknock visit in June,” Weisman said.
 
Today, Weisman addressed AmCham members and the press on the cutting edge impact of FATCA on financial institutions in Hong Kong and beyond at the Hong Kong Bankers Club.
 
The Hong Kong Government as well as various professional bodies in Hong Kong representing the banking, finance, funds, trusts, and insurance sectors have expressed serious concerns about the far-reaching scope and potential legal conflicts of FATCA.
 
In summary, while the goal of FATCA is to reduce US tax evasion by enabling US tax authorities to obtain information regarding income of US persons earned through non-US financial institutions, the scope of FATCA compliance obligations imposed on non-US financial institutions is extraordinarily broad. Under the proposed regulations, FATCA compliance obligations apply even where there is very little risk of US tax evasion. The cost of this compliance obligation is projected to be enormous. In addition, some of FATCA’s requirements conflict with the existing personal data privacy and other laws in Hong Kong and other jurisdictions.
 
Under FATCA, a 30 percent withholding tax will be imposed upon certain “US source” income and principal of such entities if they do not comply with FATCA. It impacts all payors, including foreign payors, of “withholdable payments” made to any foreign entities affecting deposit accounts, custody and investment. According to Weisman, it is extremely important that financial institutions work to understand and satisfy these new compliance obligations.
 
Under the Proposed Regulations, the implementation of FATCA will commence in 2013 with additional provisions being phased in through 2017. Non-US financial institutions have recommended that the transition periods for FATCA be extended.
 
In light of the importance of FATCA to the Hong Kong financial services community, FATCA is being made a key focus of AmCham’s Washington “Doorknock” this year. Weisman will lead this year’s Washington Doorknock, which will include meetings with members of Congress, the IRS, and US Treasury, during the week of June 10, 2012.
 
AmCham Hong Kong is active in lobbying with the US Government through the Washington Doorknock meeting with the US Executive Branch and Congressional leaders in Washington, DC. The delegation focuses on issues affecting Americans abroad, such as the double taxation issues, US-China trade relations, and the role of Hong Kong as a gateway for businesses entering China and Chinese businesses going abroad.
 
For further information, please contact:
 
Dannio Chan, The American Chamber of Commerce
dchan@amcham.org.hk

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