Fatca seen as threat for some Hong Kong banks, opportunity for others

Some Hong Kong financial institutions are refusing new business from US taxpayers due to the difficulties in complying with the Foreign Account Tax Compliance Act (Fatca), while others see it as an opportunity to gain market share.

Fatca, the US law designed to combat tax evasion by US taxpayers, has prompted many US passport holders to rethink their citizenship. Under the law, which came into effect globally on July 1, financial firms around the world are required to report to the US Internal Revenue Service (IRS) information on clients who are US taxpayers. Those firms failing to do so face a 30 per cent withholding tax on their US income.

"We're getting record numbers of inquires from US taxpayers thinking of giving up their US status," said Kurt Rademacher, director of international tax practice at Butler Snow, a US law firm.

"I've gotten hundreds of phone calls. I get lots of calls from Hong Kong. They say, 'It's too much trouble. I'd like to renounce it'," he said.

The US consulate in Hong Kong said on its website that giving up citizenship "would not relieve these individuals of prior US tax obligations, and might well create additional US tax obligations for certain citizens and long-term residents who give up citizenship or residency".

Roughly half of Rademacher's inquiries come from Asia, of which 60 per cent are from Hong Kong and 40 per cent from Singapore.

"If I sit down with wealthy Hong Kong families, at least one member or an in-law will be a US citizen or green card holder. Fatca affects a huge chunk of Hong Kong's wealthy," he said.