Singapore Signs IGA on FATCA with the United States

By Dezan Shira & Associates

Posted: 13th January 2015 12:43

SINGAPORE – On December 9, 2014, Singapore became the first country in Southeast Asia to sign an Intergovernmental Agreement (IGA) on tax information sharing with the United States. The signing follows an in substance agreement reached between Singapore and the US in May 2014.
 
Most countries around the world have been entering into IGAs with the US government since the US introduced a complex reporting and withholding regime through the passage of the Foreign Accounts Tax Compliance Act (FATCA) in March 2010.
 
FATCA requires all financial institutions outside of the US to periodically transmit information on financial accounts held by US persons to the US Internal Revenue Service (IRS), or face a 30 percent withholding tax on payments made from the US.
 
Original FATCA regulations created a reporting regime under which all foreign financial institutions would have to sign individual agreements to disclose their US clients to the IRS. This regime was modified by introducing IGAs, which were intended to increase compliance and impose a heavier legal burden on financial institutions by integrating FATCA into local law.
 
As of December 31, 2014, the FATCA information sharing regime has grown to encompass 52 countries that have formally signed an IGA with the United States and 60 countries that have reached agreement in substance to sign the agreements.
 
The type of negotiated IGA tends to differ depending on the country. Among the Asian countries that have formally signed IGAs, Hong Kong and Japan have agreed to a Model 2 IGA. Under this model, financial institutions in these countries have to directly register with the IRS.
 
Singapore has negotiated a Model 1 IGA under which Singaporean financial institutions will report information on US accounts to their local tax authority, the Inland Revenue Authority of Singapore (IRAS).
 
Snapshot of Singapore’s IGA
 
Singapore’s IGA is composed of three parts. The core text details the process of information exchange between authorities of the two countries. Annex I clarifies due diligence requirements to be fulfilled by Singaporean financial institutions. Annex II provides a list of Singaporean financial institutions that are exempt from US tax reporting because they present a low risk of tax evasion.
 
Under Annex I, individuals with US tax filing requirements must report financial accounts and offshore assets on Form 8938 if the total value of their account exceeds US$50,000. Singapore-based financial institutions must automatically report accounts held by US persons to IRAS which will in turn provide the information to the IRS.
 
Under Annex II, certain Singaporean financial institutions will be exempt from reporting. These include financial institutions that have a local base with 98 percent of their accounts held by Singaporean individuals.
 
The core text makes it clear that although the IGA has been signed, it is a part of a longer negotiation process. The agreement will only come into force once Singapore provides a written notification to the US after completing internal legislative and regulatory procedures needed to align the agreement with local laws. The agreement can also be amended any time before December 31, 2016.
 
Some countries that have in substance agreed to Model 1 IGAs are negotiating reciprocal agreements. For instance, China is negotiating a reciprocal Model 1 IGA that will force the US to share account information on Chinese citizens using US banks with the Chinese government. The Singapore-US IGA does not address reciprocity.
 
However, a press release from IRAS on December 9, 2014 hints at future negotiations on reciprocity. It states that “Singapore and the US have been discussing a reciprocal FATCA arrangement, under which the US would extend similar cooperation to Singapore.”
 
The Ministry of Finance (MOF), Monetary Authority of Singapore (MAS), and the IRAS have been preparing Singapore’s legal and regulatory system for FATCA since May 2014. The MOF has released a draft regulation and an e-tax guide as part of its public consultation activities.
 
Under steps mentioned in the e-tax guide, Singaporean financial institutions had until December 22, 2014 to register as a Foreign Financial Institution (FFI) and obtain a Global Intermediary Identification Number (GIIN) at the IRS online FATCA registration portal in order to be included in the IRS FFI list by January 1, 2015.
 
According to a list of registered FFIs made available by the IRS, 1,307 FFIs and branches in Singapore had registered and been assigned GIINs as of November 21, 2014. The number of registered institutions is expected to have grown substantially in December.
 
FATCA negotiations between Singapore and the United States remain an ongoing process. The Singaporean government is expected to sign the FATCA compliance measures into law sometime in January 2015. Regulations and legislation released by the Singaporean government in January should give an indication on how future negotiation will progress.
 
Investors engaged in business in Southeast Asia can expect to see many of the other countries in the region agree to their own IGAs with the US. In fact, Indonesia, Thailand, and Cambodiahave all reached in substance agreements on FATCA. It is certain that neighboring countries will soon follow suit.
To learn more about how FATCA may affect your business in Southeast Asia and throughout the wider region, please contact the tax specialists at Dezan Shira & Associates.
T
he full text of Singapore’s IGA can be found here
 
This article was first published on ASEAN Briefing.
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across Chin a, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.

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