15 May, 2014
Legal News & Analysis – Asia Pacific – Singapore – Tax
The Monetary Authority of Singapore (“MAS“) announced on 6 May 2014 that Singapore and the US have substantially concluded discussions on an Intergovernmental Agreement (“IGA“) that will facilitate compliance with the US Foreign Account Tax Compliance Act (“FATCA“) by Singapore-based financial institutions.
Overview
FATCA was implemented by the US government in 2010 to into prevent tax evasion by US citizens and residents through use of offshore accounts. Under FATCA, all financial institutions outside of the US are required to regularly submit information on financial accounts held by US persons to the US Internal Revenue Service (“IRS“). FATCA provides for financial institutions to enter into an agreement with the IRS to report such information. Financial institutions which do not enter into an agreement with the IRS will be subject to a 30% withholding tax on US sourced payments.
Effect Of Signing A Model 1 IGA
Singapore and the US have initialled a Model 1 IGA. Under the Model 1 IGA, Singapore-based financial institutions will report information on financial accounts held by US persons to the Inland Revenue Authority of Singapore, which will in turn provide the information to the IRS. In addition, the financial institution is generally relieved of certain FATCA requirements, including:
- Entering into an agreement with the IRS;
- Simplified due diligence on US account holders;
- Withholding on payments to non-participating financial institutions; and
- Withholding on or closing accounts of “recalcitrant account holders”.
Having initialled the Model 1 IGA, Singapore was included on 5 May 2014 in the US Treasury’s list of jurisdictions that are treated as having an IGA in effect. Accordingly, Singapore-based financial institutions can now register at the FATCA Registration Portal as a “Registered Deemed-Compliant FFI” within a Model 1 IGA jurisdiction. Singapore-based financial institutions will have until 31 December 2014 to do so and obtain a Global Intermediary Identification Number at the IRS’ online FATCA registration portal.
Upcoming Developments
Singapore and the US are expected to sign the IGA in the second half of 2014. Further guidance will be provided in the second half of 2014 by the Inland Revenue Authority of Singapore, the MAS, and the Ministry of Finance to Singapore-based financial institutions on how to comply with their FATCA obligations. The Ministry of Finance will hold a public consultation on the draft guidance before it is finalised.
For further information, please contact:
Elaine Chan, Partner, WongPartnership
Joy Tan, Partner, WongPartnership
WongPartnership Tax Practice Profile in Singapore