Financial firms struggling with Fatca compliance as deadline looms
The first deadline for the US Internal Revenue Service's new Foreign Account Tax Compliance Act falls on July 1, but will financial institutions in Asia be ready?
Many financial institutions in Hong Kong, Singapore and other parts of the world are facing difficulties complying with the Foreign Account Tax Compliance Act (Fatca), forcing the United States government to put off its enforcement.
Fatca is designed to combat tax evasion by US taxpayers.
Under the act, financial firms around the world are required to report to the US Internal Revenue Service information on clients who are US taxpayers. Those that fail to do so would face a 30 per cent withholding tax on their US income.
[The US has] underestimated the difficulty of complying with Fatca
"By July 1, the original deadline, a big percentage of smaller financial institutions in Hong Kong will not be Fatca-ready," said Toine Knipping, the chief executive of international trust company Amicorp Group.
Even some large financial institutions still had considerable work to do for Fatca compliance, said Karl Egbert, a partner at US law firm Dechert.
From Fatca's first major deadline, July 1, new clients are required to report their US-related information to their financial institutions.
From January 1 next year, financial institutions must start providing their clients' information to the US government.
However, the impact of the July 1 deadline has been lessened greatly by the IRS and US Treasury's recent relief measures, which gave financial institutions more time to complete their Fatca compliance, said Egbert.