Hong Kong: Hong Kong signs Model 2 IGA under FATCA
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Hong Kong: Hong Kong signs Model 2 IGA under FATCA

lau.jpg

bowdern.jpg

Ayesha Lau


Darren Bowdern

Hong Kong and the US signed an intergovernmental agreement (IGA) on November 13 2014 that will facilitate compliance with FATCA by financial institutions in Hong Kong. Within Asia-Pacific, only Australia, New Zealand, Hong Kong and Japan have signed IGAs with the US Treasury to date, thereby defining their obligations and exemptions under FATCA and local law. In particular, the Hong Kong IGA covers certain exemptions for financial institutions or products, including Mandatory Provident Fund schemes, registered financial institutions with a local client base, certain investment advisers and investment managers established in Hong Kong.

While the Hong Kong IGA largely mitigates the need for FATCA withholding, there will still be cases where FATCA withholding could apply that is, where withholdable payments (US source income or proceeds from the sale of property that generates US source income) are made to overseas non-participating FFIs.

Under the IGA, foreign financial institutions (FFIs) in Hong Kong may rely on a set of streamlined due diligence procedures to screen and identify US indicia to locate US accounts and clients for reporting purposes. For example, in determining whether a new individual account is a US account based on a customised self-certification received from the applicant, rather than more esoteric procedures under FATCA regulations, such as the use of US-centric withholding certificates. FFIs are required, however, to confirm the reasonableness of such certification which can be accomplished by reference to other documents obtained during the account opening process.

FFIs are required to report the relevant account information of US taxpayers directly to the IRS under the Model 2 IGA adopted by Hong Kong. This is supplemented by group requests made by the IRS to the Hong Kong Inland Revenue Department for exchange of information on relevant US taxpayers at a government level on a need basis. We expect that local authorities will only be involved by exception.

One of the largest misconceptions about FATCA is that FFIs without US customers will not be impacted. While the reporting aspects of FATCA are reduced when there are no US customers, the primary responsibility conferred upon FFIs is to be able to identify US customers through the new client due diligence process as well as through pre-existing client remediation.

Furthermore, companies that are not normally considered financial institutions may still be considered FFIs under the Hong Kong IGA (that is, under the headings of custodial institution, depository institution, investment entity or specified insurance company) and may have due diligence and reporting requirements under FATCA.

Ayesha Lau (ayesha.lau@kpmg.com) and Darren Bowdern (darren.bowdern@kpmg.com)

KPMG

Tel: +852 2826 8028 & +852 2826 7166

Website: www.kpmg.com/sg

more across site & bottom lb ros

More from across our site

The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
HSBC has settled a claim originally worth £240m relating to a failed film tax relief scheme without admitting liability or wrongdoing
Their prediction comes after the IRS announced it would send compliance letters to large foreign companies emphasising their US tax obligations
The ex-client is also suing the entire EY Australia partnership
Gift this article