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[SINGAPORE] Singapore has initialled the much-anticipated agreement with the United States to deliver to its taxman data on US citizens and US permanent residents who keep bank accounts here.
The inter-governmental agreement (IGA) will pave the way for compliance with a US law called the Foreign Account Tax Compliance Act (Fatca) by financial institutions here.
The IGA has come to pass despite much posturing by the banking industry, but will burnish Singapore's standing as an international financial hub and give it a competitive edge, say consultants.
Jim Calvin, Deloitte Asia-Pacific's financial services industry tax leader, noted that Singapore is likely to be one of the few jurisdictions in South-east Asia to have an IGA with the US before July 1, the go-live date for Fatca.
"This is a clear competitive advantage and Singapore will be recognised as one of the, if not the most mature and nimble financial centres in Asia," he said.
Singapore-based financial institutions will report information on financial accounts held by US persons (including those who hold the US Green Card) to the Inland Revenue Authority of Singapore (IRAS). The Singapore taxman will, in turn, feed the information to the US Internal Revenue Service (IRS).
The Ministry of Finance (MOF) said yesterday: "Transmitting this information through IRAS helps to ease the compliance burden for our financial institutions, as their reporting obligations would be deemed met once they have transmitted the information to IRAS."
Fatca targets overseas accounts held by US persons. Financial institutions outside the US have to regularly submit information on accounts of US persons to the IRS; failure to do this will result in a 30 per cent tax on the financial institution.
Following the initialling of the IGA, the formal agreement is expected to be signed in the second half of this year.
Singapore-based financial institutions will have until Dec 31 to register on the IRS' online Fatca registration portal.
A spokesman for MOF said transmission of information to IRAS is expected to start in Q2 2015, and financial institutions are to submit the relevant information once a year.
Fatca compliance is an expensive exercise, but the government-to-government agreement makes implementation easier as it is based on local laws.
Desmond Teo, an EY partner in financial services tax, said Singapore-based financial institutions would thus not need to deal with US legislation any more. "Rather, it becomes a compliance with a Singapore agreement signed with the US, making it easier as the framework would be tailored to the local regulatory and legal environment, especially if the guidance to be issued by the Singapore authorities can contain prescriptive guidance."
Banks have been busy getting ready for Fatca.
In the last 11/2 years, OCBC Bank and its private bank unit Bank of Singapore have been preparing to meet the requirements set out under Fatca, said Loretta Yuen, its head of legal and regulatory compliance.
"Invariably, these measures and others translate to compliance costs. We believe, however, that the regulation promotes transparency and adds to Singapore's standing as an international financial centre; this will benefit us as we continue to grow our leading wealth management business in the region and beyond."
DBS Bank has also been taking steps to put in place the systems and processes by the stipulated deadlines. Its spokesman said the bank has, for example, already registered with IRS.
"Another of our top priorities will be to minimise the impact of these new regulations on our customers," the spokesman added.
Being Fatca-compliant should stamp out the belief that banks here do not have US clients. Previously, the banks had thought they could escape the IRS dragnet by declaring that they would not accept US persons as clients.
The problem with this was that it is not always clear who is holding a US Green Card. Such clients are reportable to IRAS and, ultimately, to the IRS, said Mr Calvin.
"In addition, the strategy of prohibiting US persons from holding accounts is really not practical. As soon as a bank becomes aware, for example, that a Singaporean has been given a US Green Card, that person becomes a reportable US person.
"We think most banks have given up on this prohibition, but not all."