Singapore and the United States have signed an agreement which will enable Singapore-based financial institutions to more easily comply with the US Foreign Account Tax Compliance Act.
The two countries have initialled a model 1 intergovernmental agreement, which requires Singapore-based financial institutions to report information on financial accounts held by US persons to the Inland Revenue Authority of Singapore (IRAS), which in turn will provide the information to the US Internal Revenue Service (IRS).
The countries expect to sign the agreement in the second half of the year, a statement on the Monetary Authority of Singapore’s website said.
The Singapore regulator said transmitting the information through IRAS helps to ease the compliance burden for local financial institutions as their reporting obligations would be deemed met once they have transmitted the information to IRAS.
By 31 December, Singapore-based financial institutions will have to register as a foreign financial institution and obtain a global intermediary identification number at the US IRS’ online FATCA registration portal. This will ensure that there is no FATCA-related withholding tax on payments made to them from the US.
FATCA was enacted by the US Congress in March 2010
to target non-compliance with US tax laws by US persons using foreign accounts and affects financial institutions worldwide. Under FATCA, all financial institutions outside of the US are required to regularly submit information on financial accounts held by US persons to the IRS.
It ensures that US persons, wherever they are located and in whatever investment vehicle they hold their assets, are paying the correct amount of US tax.
Financial institutions that fail to comply face a 30% FATCA-related withholding tax on certain payments made from the US to them.
In addition to the model 1 agreement, there is another, called model 2, that establishes a framework of financial institutions outside the US to directly report account information of US persons to the US IRS, which is supplemented by information exchange upon request between the US and its relevant government counterpart.