This article was originally published in the Singapore Business Review – http://sbr.com.sg/financial-services/commentary/are-singapore%E2%80%99s-financial-institutions-keeping-fatca
FATCA stands for the Foreign Account Tax Compliance Act and was enacted by the United States Congress back in 2010 to encourage tax compliance by US persons using non-US financial accounts.
FATCA requires all financial institutions outside the US to transmit on a regular basis, information about financial accounts held by US persons to the Internal Revenue Service (IRS). Financial Institutions that fail to comply could have certain US-source payments subject to 30% FATCA-related withholding.
In May 2014, the Singapore Government announced its intention to conclude a Model 1 Inter Governmental Agreement (IGA) with the US Department of the Treasury.
Singaporean financial institutions are now registering with the IRS’ FATCA Registration Portal to be considered a “Registered Deemed Compliant” foreign financial institution within a Model 1 IGA jurisdiction. Evidence of this registration is the receipt of a Global Intermediary Identification Number (GIIN).
The Inland Revenue Authority of Singapore’s (IRAS) website notes that for accounts opened on or after July 1st 2014, Singaporean Financial Institutions will be required to perform due diligence procedures in relation to New Individual Accounts and New Entity Accounts.
In other words, client on-boarding procedures should now include checks for evidence of the account holder’s US connections otherwise known as US indicia.
The IRS has listed seven indicia of US status: US citizenship or permanent residence (i.e. a green card), a US birth place, US residence address or US correspondence address, a US phone number, Standing instructions to transfer funds to an account maintained in the US, a Power of Attorney or signatory authority granted to a person with a US address, and an ‘in care of’ address or ‘hold mail’ address in the US.
Also companies and partnerships have to be checked intensively to see whether they are substantially owned by US persons i.e. whether the interest of a US person in a company is higher than a certain threshold.
I recently spoke with a FATCA consultant and there is the perception that Singapore’s financial institutions are still adopting a “wait and see” approach. A look at the data suggests that there may be some merit in this observation.
The August 2014 list of financial institutions registered on the IRS’ FATCA portal shows a total of about 95,000 financial institutions up from 77,000 in July 2014. Of these, only 1,120 are in Singapore.
It helps to see how the 1,120 registered Singaporean financial institutions compare to other jurisdictions. Bermuda registered 1,730 financial institutions on the FATCA portal; Jersey registered 2,095 financial institutions on the FATCA portal; Hong Kong registered 2,377 financial institutions on the FATCA portal; the British Virgin Islands registered 2,641 financial institutions on the FATCA portal; Luxembourg registered 4,376 financial institutions on the FATCA portal; Switzerland registered 4,454 financial institutions on the FATCA portal; and the Cayman Islands registered 18,408 financial institutions on the FATCA portal.
In short, when one compares the response of Singapore’s financial institutions to that of other major financial centers, Singapore’s registration numbers do appear to be on the lower side. To be fair however, Singaporean financial institutions do have until January 2015 to register with the IRS’s FATCA portal and secure their Global Intermediary Identification Number (GIIN).
A second consideration is that it is quite possible that Singapore simply has fewer eligible financial institutions than competing jurisdictions. A third consideration is that all the larger financial institutions are understood to be compliant, so it is possible that the SMEs just need more support in understanding their responsibilities.
The IRAS website explains that further guidance will be provided in the second half of 2014 by the Inland Revenue Authority of Singapore, the Monetary Authority of Singapore, and the Ministry of Finance to Singapore-based Financial Institutions on how to comply with their FATCA obligations. It also noted that the Ministry of Finance will hold a public consultation on the draft guidance before it is finalised.
Let’s keep an eye on the Model 1 IGA being negotiated. In the meantime, all of Singapore’s financial institutions need to get ready.