US, South Korea Sign FATCA Agreement
South Korea signed a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA) with the United States on June 10, 2015.
FATCA is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients will result in a 30 percent withholding tax on payments of US-sourced payments.
To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the US Treasury has developed model IGAs. Under the terms of the Model 1 IGA between South Korea and the US, Korea-based FIs will need to report information on financial accounts held by US persons to the National Tax Service (NTS), which will then exchange the information with the IRS.
Transmitting this information under the terms of the IGA will therefore help to ease the compliance burden for Korean FIs, as their reporting obligations will be deemed to have been met once they have transmitted the information to the NTS.
Under the IGA, the automatic exchange of information will also be reciprocal. The NTS will be able to obtain information available to the IRS on the financial accounts of South Koreans at US FIs on which more than USD10 in annual interest is earned.
