Under the model 2 agreement, financial institutions in Hong Kong will need to register and conclude separate individual agreements with the US Inland Revenue Service (IRS).
Foreign financial institutions in Hong Kong need to register with the IRS on or before 30 June to be FATCA-compliant.
“The IGA (inter governmental agreement), which the two countries have reached in substance, will reduce the reporting burden and facilitate compliance with FATCA by financial institutions in Hong Kong,” a spokesperson for the Financial Services and the Treasury Bureau said.
According to the spokesperson, the IGA will lower overall compliance costs for the industry and safeguard the interests of these institutions and their clients.
The model 2 IGA will be supplemented by an exchange of information agreement on relevant US taxpayers at a government level, on a need basis and upon request, and follows a tax information exchange agreement signed between Hong Kong and the US in March.
Recently, the Monetary Authority of Singapore also said it is expected to sign a model 1 agreement with the US during the second half of the year, for facilitating the compliance of FATCA tax norms.
A model 1 agreement requires financial institutions outside the US to report account information of US taxpayers to their own government, which will then exchange such information at a government level with the US IRS.
FATCA is an anti-tax evasion regime enacted by the US in March 2010 to detect US taxpayers who use accounts with non-US financial institutions to conceal income and assets from the US IRS.
The norms require financial institutions outside of the US to report financial account information of US taxpayers to the US IRS. Financial institutions that do not comply with FATCA may be subject to a withholding tax of 30% on certain payments received by them.
