Hong Kong reaches tax deal over US accounts
Agreement will help ease reporting burden of financial firms of American customers
The government said yesterday it would sign a tax agreement with the United States this year that will help reduce the reporting burden of financial firms under the US Foreign Account Tax Compliance Act (Fatca). The accord will be implemented in July.
Fatca requires all financial firms to report to the Internal Revenue Service the accounts of US citizens and permanent residents who are their clients. It is aimed at preventing tax avoidance. Failure to report would incur a 30 per cent withholding tax penalty on the firms’ US income.
Under the accord with the US, financial firms will need to register and conclude separate individual agreements with the IRS to file annual reports on the accounts they have of US taxpayers.
A spokesman for the Financial Services and the Treasury said the agreement would reduce the reporting burden and help Hong Kong firms comply with the law. It will also exempt financial institutions or products which present low risk of tax evasion by US taxpayers.
Hong Kong Investment Funds Association chief executive Sally Wong said the agreement “is a formidable task and the government has used their best endeavours to help the fund industry and ultimately the investors to achieve an optimal outcome. In particular, they have made a major achievement by helping [Mandatory Provident Fund] schemes to get exempted.”
Charles Kinsley, a principal of KPMG China, said: ” This comes as welcome news to financial institutions, which have been deliberating over whether they can register with the [IRS]. “Furthermore, it should demonstrate Hong Kong’s commitment to mitigate tax evasion and to support greater tax transparency and international co-operation.”
The HKIFA lobbied the US over the past two years to exempt the MPF and investment products from reporting to the IRS since they are seldom used for tax avoidance purposes.
The tax agreement reached by Hong Kong is similar to those signed between the US and many European and Asian countries.
