Foreign Account Tax Compliance Act (hereinafter referred as FATCA), a part of the Hiring Incentives to Restore Employment Act (HIRE) by United States Government, has been reacted in 2013. FATCA basically requires for foreign financial institutions and owners to report the transactional information of their American taxpayers’ accounts. If failed to comply, each entities expect to face a serious fine by IRS (Internal Revenue Service), U.S. tax ranger.
According to the reference from Wikipedia.com, FATCA has three main parts. First of all, it requires foreign banks and financial entities to look up any American account holders and report their transactional information, such as account holder’s information, bank balance, deposits and withdrawal based on the exclusive agreement with U.S IRS. Any institutions who do not comply this process are subject to a 30% withholding tax on income from US financial assets held by the banks or financial entities. Also account holders who own foreign-based assets should report them on their tax return claim if they are worth more than US$50,000(In case of cash-equivalent insurance, US$250,000). Any holders who report the understatement of assets clam shall be subject to a 40% penalty in undisclosed foreign assets. Additionally financial institutions should check if U.S. taxpayer’s shareholding exceeds 10%. If so, the institutions are obliged to report the required information by IRS. Any wrongdoing or avoidance of reporting expects to face an additional charge for not reporting properly or a possible jail period.
Start from 2014, allegedly any foreign financial institutions that not making an agreement with IRS are shall be subject to a 30% withhold tax for income from interest, dividends, lease, royalty incurred in United States in annual base. In the beginning 2017, taxable income expect to expand to other incomes from equity sales, bond sales and salaries.
Since major financial institutions, banks, insurance, securities in Korea are engaged in not only domestic, but also global basis. Any financial institutions are exposed on U.S presence or under the influence on U.S citizen should be ready for FATCA. Since FATCA is specifically designed for a runaway U.S taxpayer who own assets on foreign banks, each institution seems to have no alternatives. No matter the bank agrees with IRS or not, either they will lose U.S account holders who are anxious for the report or the bank will be charged with a significant amount of tax payment. Reported key action in compliance with FATCA is to keep the reporting due to IRS. In order to so, each institution must equip with a professional working group as well as job training related to FATCA in terms of the customer information. Also it strongly recommends appointing the CRO (Chief Responsible Officer) who are solely responsible for FATCA guideline. Also the next generation system need to be either equipped or updated to keep up with FATCA’s requirement in terms of financial instrument and customer management.
Without taking on United States properly, there will be no financial or overall business to proceed at the current era. FATCA initiated by United States are taken in effect from the beginning of 2013. For fear of serious penalty for not reporting the information with regard to foreign account by American citizen, global financial institutions including Korean banks are necessary to equip the system and facility to be able to deliver the report required by IRS.
By Jinmok Kim