Bank accounts in Singapore will come under closer scrutiny from next year onwards once the new US tax law FATCA takes effect in July 2014. However, this is not expected to affect Singapore’s economic competitiveness.
According to a The Straits Times article titled ‘New US tax law won’t hurt Singapore’s competitiveness,’ Senior Minister of State for Finance and Transport Josephine Teo said the new rules will not affect Singapore’s status as a financial hub, although the cost of complying with international tax law may increase.
The Foreign Account Tax Compliance Act (FATCA) is an inter-governmental agreement which targets tax non-compliance by US taxpayers using overseas accounts. Financial institutions outside the US must share information about financial accounts held by US persons to the US tax authority Inland Revenue Services (IRS).
It is meant to spot US citizens and residents who are squirreling away untaxed dollars in unreported offshore bank accounts and earning income which is not declared. It is also meant to crack down on international money laundering.
Other than American individuals, FATCA is also applicable to corporations or partnerships which have at more than a 10% interest owned by a US person.
Analysis by corporate services provider Rikvin shows that corporate entities in Singapore with close US ties will have to undertake compliance measures to ensure that their accounts are fully compliant with US tax and reporting obligations.
Commenting on this, Mr. Satish Bakhda, Head of Operations at Rikvin, said local business and corporate entities which have close US ties should start ensuring that their accounts are compliant with FATCA requirements.
“Right now, it is important that entities conduct a thorough review of their businesses and adapt their processes and workflows to the new system.”
“Entities which are not familiar with FATCA or the new tax laws should engage the services of a professional service provider to aid them in compliance matters. This will ensure that they do not miss out any requirements which could lead to potential criminal prosecution in the future,” he said.
However, complying with the new rules will not mean Singapore is less than ideal for foreign or local businesses to continue setting up here.
“In fact, the new tax laws show how transparent and conducive the Singapore business environment is. Firms which set up a presence in Singapore can be assured that they are dealing with bonafide businesses and clean finances,” he said.