Hong Kong FATCA Agreement (IGA) with the United States: The Hong Kong FATCA Agreement with IRS is complex. In recent years, the IRS has taken an aggressive stance on foreign accounts compliance. This led to the development of FATCA. The U.S. has entered into FATCA Agreements with over 110 countries, including Hong Kong. Hong Kong and the U.S. entered into a FATCA Agreement in July, 2016. FATCA is the Foreign Account Tax Compliance Act. And, even though the US. and Hong Kong have not yet entered into a bilateral tax treaty, they have agreed to FATCA. The purpose of FATCA is to promote global financial transparency, while reducing offshore tax evasion. The IRS strictly enforces FATCA for both Foreign Financial Institutions and U.S filers.
Hong Kong FATCA Agreement (IGA) with the United States
The Hong Kong FATCA Agreement between the U.S. and Hong Kong is complex. Here are some of the key components to the Hong Kong and U.S. FATCA Agreement:
Who is a U.S. Person?
The term “U.S. Person” means a U.S. citizen or resident individual, a partnership or corporation organized in the United States or under the laws of the United States or any State thereof, a trust if (i) a court within the United States would have authority under applicable law to render orders or judgments concerning substantially all issues regarding administration of the trust, and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the United States. This subparagraph 1(y) shall be interpreted in accordance with the U.S. Internal Revenue Code
Who is an Account Holder?
The term “Account Holder” means the person listed or identified as the holder of a Financial Account by the Financial Institution that maintains the account. A person, other than a Financial Institution, holding a Financial Account for the benefit or account of another person as agent, custodian, nominee, signatory, investment advisor, or intermediary, is not treated as holding the account for purposes of this Agreement, and such other person is treated as holding the account.
For purposes of the immediately preceding sentence, the term “Financial Institution” does not include a Financial Institution organized or incorporated in a U.S. Territory. In the case of a Cash Value Insurance Contract or an Annuity Contract, the Account Holder is any person entitled to access the Cash Value or change the beneficiary of the contract. If no person can access the Cash Value or change the beneficiary, the Account Holder is any person named as the owner in the contract and any person with a vested entitlement to payment under the terms of the contract. Upon the maturity of a Cash Value Insurance Contract or an Annuity Contract, each person entitled to receive a payment under the contract is treated as an Account Holder.
What is a U.S. Account?
The term “U.S. Account” means a Financial Account maintained by a Reporting HKSAR Financial Institution and held by one or more Specified U.S. Persons or by a Non-U.S. Entity with one or more Controlling Persons that is a Specified U.S. Person. Notwithstanding the foregoing, an account shall not be treated as a U.S. Account if such account is not identified as a U.S. Account after application of the due diligence procedures in Annex I
How do Hong Kong Institutions Report?
The HKSAR shall direct all Reporting HKSAR Financial Institutions to:
a) register on the IRS FATCA registration website with the IRS by July 1, 2014, and comply with the requirements of an FFI Agreement, including with respect to due diligence, reporting, and withholding;
b) with respect to Financial Accounts maintained by Reporting HKSAR Financial Institutions as of June 30, 2014 identified as U.S. Accounts,
- request from each Account Holder the Account Holder’s U.S. TIN and consent to report;
- (ii) report annually to the IRS, in the time and manner required by an FFI Agreement and relevant U.S. Treasury Regulations, the aggregate information required with respect to Non-Consenting U.S. Accounts;
c) with respect to accounts of, or obligations to, Nonparticipating Financial Institutions that exist as of June 30, 2014, and in connection with which the Reporting HKSAR Financial Institution expects to pay a Foreign Reportable Amount,
(i) with respect to calendar years 2015 and 2016, request from each such Nonparticipating Financial Institution the Nonparticipating Financial Institution’s consent to report;
(ii) with respect to calendar years 2015 and 2016, report to the IRS the number of non-consenting Nonparticipating Financial Institutions to which Foreign Reportable Amounts were paid during the year and the aggregate value of all such payments no later than March 15 of the year following the year to which the information relates;
d) with respect to New Accounts identified as U.S. Accounts, obtain from each Account Holder consent to report, consistent with the requirements of an FFI Agreement, as a condition of account opening; and
e) with respect to new accounts opened by, or obligations entered into with, a Nonparticipating Financial Institution on or after July 1, 2014, and in connection with which the Reporting HKSAR Financial Institution expects to pay a Foreign Reportable Amount, obtain from each such Nonparticipating Financial Institution consent to report, consistent with the requirements of an FFI Agreement, as a condition of opening the account, or entering into the obligation
How is information Exchanged?
Exchange of Information:
a) In the context of FATCA implementation, the U.S. Competent Authority may make group requests to the HKSAR Commissioner of Inland Revenue or his authorized representative based on the aggregate information reported to the IRS pursuant to the directive described in subparagraphs 1(b)(ii) and 1(c)(ii) of this Article, for all the information about Non-Consenting U.S. Accounts and Foreign Reportable Amounts paid to Nonparticipating Financial Institutions that the Reporting HKSAR Financial Institution would have had to report under an FFI Agreement had it obtained consent. Such requests shall be made pursuant to Article 5 of the TIEA and shall apply to information in respect of any period that starts on or after the date of entry into force of the TIEA, and for all charges to tax arising on or after the date of entry into force of the TIEA.
b) The information requested pursuant to subparagraph 2(a) of this Article shall be considered information that is foreseeably relevant for carrying out the administration or enforcement of the domestic laws of the United States concerning taxes covered by the TIEA and under which taxation is not contrary to the TIEA, without regard to whether the Reporting HKSAR Financial Institution or another party has contributed to non-compliance of the taxpayers in the group request.
c) The HKSAR Commissioner of Inland Revenue or his authorized representative shall, within six months of the receipt of the group request, provide the U.S. Competent Authority with all such requested information in the format as requested, or if the information cannot be provided as requested within the aforementioned period, the HKSAR Commissioner of Inland Revenue or his authorized representative shall notify the U.S. Competent Authority and the relevant Reporting HKSAR Financial Institution that there will be a delay in the exchange of the requested information. In such case, the provisions of subparagraph 2(b) of Article 3 of this Agreement shall apply with respect to the Reporting HKSAR Financial Institution, and the HKSAR Commissioner of Inland Revenue or his authorized representative must as soon as possible exchange the requested information with the U.S. Competent Authority pursuant to the terms of the TIEA.
d) Notwithstanding subparagraph 2(c) of this Article, the HKSAR Commissioner of Inland Revenue or his authorized representative is not required to obtain and exchange the U.S. TIN of the Account Holder of a Non-Consenting U.S. Account if such U.S. TIN is not in the records of the Reporting HKSAR Financial Institution. In such case, the HKSAR Commissioner of Inland Revenue or his authorized representative shall obtain and include in the exchanged information the date of birth of the relevant person, if the Reporting HKSAR Financial Institution has such date of birth in its records.
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