Singapore, US cut deal to combat non-compliance with US tax laws

Singapore has "substantially" concluded the discussion with the United States on an intergovernmental agreement that aim at preventing tax evasion by U.S. citizens, permanent residents and entities, the Monetary Authority of Singapore, the city-state's Ministry of Finance and Inland Revenue Authority of Singapore (IRAS) jointly announced on Tuesday. The agreement requires Singapore-based financial institutions to comply with the so-called U.S. Foreign Account Tax Compliance Act (FATCA). The Act, which is set to take effect on July 1, targets non- compliance with tax laws by U.S. persons using overseas accounts. Under the FATCA, all financial institutions outside of the United States are required to regularly submit information on financial accounts held by U.S. persons to the U.S. Internal Revenue Service. Singapore and the United States have initialed a Model 1 intergovernmental agreement. It means that Singapore-based financial institutions will report information on financial accounts held by U.S. persons to the IRAS, which will in turn provide the information to the U.S. Internal Revenue Service. "Transmitting this information through IRAS helps to ease the compliance burden for our financial institutions as their reporting obligations would be deemed met once they have transmitted the information to IRAS," the joint statement said. Another reputable wealth management center, Swiss, had also signed similar agreement with the United States, but it was under Model 2. This kind of model requires that foreign financial institutions directly report the account information to U.S. Internal Revenue Service based on a declaration of consent of the account holder. Following the initialing of the intergovernmental agreement, Singapore and the United States expect to sign the agreement in the second half of this year. Foreign financial institutions that do not comply with FATCA will face a 30 percent- withholding tax on certain payments made to them from the United States.