FATCA Update – India and South Korea to sign IGAs

Two more big fish have agreed to swim in the Foreign Account Tax Compliance Act (FATCA) pool as the governments of India and South Korea both announce treaty talks have started.

In New Delhi, a senior Indian government official confirmed discussions about an inter-governmental agreement were already under way.

The Royal Bank of India, the central bank regulator, and the Securities and Exchange Board of India (SEBI) are proposing to issue guidelines to Indian financial institutions about how to comply with FATCA in the new tax year.

The South Korean Ministry of Strategy and Finance has also announced a FATCA inter-governmental agreement will be signed with the US following talks in Washington.

The South Korean National Tax Service has agreed a reciprocal arrangement with the US Internal Revenue Service (IRS) to exchange lists of names and financial information of South Korean taxpayers with bank accounts and investments in the US, while supplying the same data to the IRS on US taxpayers who are customers of South Korean financial institutions.

The information will be exchanged every September.

South Korean tax campaign

The South Koreans are running a campaign to encourage taxpayers who hold significant amounts of money in offshore accounts to declare their assets and to pay the right amount of tax.

South Koreans with assets of more than $927,000 must make the report and explain how the funds were sourced or pay a minimum 10% fine on the value of the fund.

FATCA is due to start on July 1, 2014.

Foreign financial institutions must identify their American customers with bank accounts and investments worth more than $50,000 to the IRS from that date.

US taxpayers must also declare their offshore assets so the banking reports and tax returns can be compared.

FATCA information

FATCA is designed to detect US taxpayers hiding cash and assets offshore.

Financial institutions that fail to make reports through their national tax authority if the country has an inter-governmental agreement with the US or those in countries without an agreement who have failed to register with the IRS, both face a 30% withholding tax on any transactions within the US banking system.

So far, around 50 countries have signed or indicated they will sign a FATCA agreement with the US.

The IRS is also expecting around 770,000 financial institutions from around the world to register on the FATCA online portal before the end of April 2014.

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